Is Canopy Growth Stock a Buy or a Sell in April 2023?

Canopy Growth stock is trading at a depressed valuation due to weak fundamentals. But does this make WEED stock a buy right now?

| More on:
Cannabis stocks have fallen.

Canadian cannabis stocks have taken investors on a roller-coaster ride in recent years. For instance, between January 2015 and 2019, shares of Canopy Growth (TSX:WEED) surged over 1,600% due to optimism surrounding cannabis legalization. After touching all-time highs in April 2019, WEED stock is currently trading over 95% below record prices.

In the last few years, the marijuana producer has been wrestling with industry-wide issues ranging from competition from illegal sales to the slow rollout of retail stores in major provinces, overvalued acquisitions, and rising competition.

Moreover, the cannabis industry is heavily regulated in Canada, and marijuana producers face several limitations when it comes to product-based advertising. These headwinds resulted in an oversupply of cannabis, low profit margins, high inventory levels, and multi-billion-dollar write-downs.

In fact, a report from Miller Thomson, a law firm, claims Canadian investors have lost around $130 billion in marijuana stocks. A lawyer at Miller Thomson, Larry Ellis, also stated, “it’s an industry that has been created by the Canadian government and frankly set up to fail.”

Currently trading near multi-year lows, let’s see if you should invest in Canopy Growth stock right now.

Is Canopy Growth stock a falling knife?

Canopy Growth has increased its sales from $398.7 million in fiscal 2020 (ending in March) to $520 million in fiscal 2022. However, its operating losses in the last three years have totaled more than $2 billion, with the company unable to report a gross profit in the last seven quarters.

To improve the bottom line, Canopy Growth stock has shut down manufacturing facilities, reduced its workforce, and divested its retail operations in Canada.

Despite these downsizing efforts, analysts expect Canopy Growth to report an adjusted loss of $4.55 per share in fiscal 2023, compared to a loss of $0.58 per share in fiscal 2022. In the third quarter (Q3) of 2023, Canopy’s sales were also down 28% year over year at $101 million.

The company ended the December quarter with less than $800 million in cash and $1.3 billion in debt. It will soon have to raise equity or debt capital to support its cash-burn rates, diluting shareholder wealth or further leveraging its balance sheet in the process.

Canopy raised $203 million in convertible debentures this February, providing it with enough liquidity to sustain operations for at least a year, given it has also identified $160 million in cost savings for the next 12 months.

Canopy Growth is now banking on the U.S. to decriminalize the recreational consumption of cannabis at the federal level, which will provide the pot giant access to the world’s largest marijuana market. However, the cannabis market south of the border is already crowded with the presence of several multi-state operators.

What is the price prediction for WEED stock?

Out of the eight analysts tracking Canopy Growth stock, six recommend a “buy,” and two recommend a “sell.” Bay Street now expects WEED stock to surge 31% in the next 12 months, despite its weak fundamentals.

I believe Canopy Growth stock does not offer a compelling risk/reward profile for investors. There are several other TSX stocks you can buy at a lower valuation right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Cannabis Stocks

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Why Canopy Growth Stock Could Double in 2024

Canopy Growth (TSX:WEED) stock saw its share more than double in the last two weeks. So, can it do it…

Read more »

Coworkers standing near a wall
Cannabis Stocks

Why Is Everyone Talking About Canopy Growth Stock?

Canopy Growth stock (TSX:WEED) saw shares surge in the last two weeks for a variety of reasons investors can dig…

Read more »

Pot stocks are a riskier investment
Stocks for Beginners

Why Shares of Cannabis Stocks Are Rising This Week

Cannabis stocks received a boost this week as the White House urged the drug enforcement administration to reschedule the drug.

Read more »

A person holds a small glass jar of marijuana.
Stocks for Beginners

Why Canopy Growth Stock Jumped 16% on Wednesday

Canopy Growth stock (TSX:WEED) is up 16% on Wednesday, adding to a surge of 60% growth in the last week…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Is the Worst Over for Canopy Growth Stock?

Down 99% from all-time highs Canopy Growth stock has burnt investor wealth and remains a high-risk investment.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Steer Clear: This Stock Spells Trouble

A newly listed cannabis stock is outperforming in 2024 but investors should stay clear to avoid trouble and losses.

Read more »

Cannabis stocks have fallen.
Cannabis Stocks

2 Best Marijuana Stocks to Buy This Month

Marijuana stocks in the U.S. such as Green Thumb and Curaleaf can help you deliver outsized gains to investors in…

Read more »