Canopy Growth Corp (TSX:WEED) stock has been in a freefall for many years now. Starting in 2018, the stock crashed, and was setting new lows as recently as this year. As of this writing, WEED stock traded for $0.60, placing it squarely in the ‘penny stock‘ category. It was $51.83 at its all-time high.
It’s somewhat curious that Canopy’s big sell-off began in late 2018, just as marijuana legalization was being rolled out nationwide. The prevailing sentiment in 2017 and early 2018 was that legalization would boost marijuana stocks but, in fact, it seems to have held them back. It’s true that weed stocks saw a big revenue jump after cannabis was legalized. The problem was that their expenses grew even faster than their sales did. They also took some damage when acquisitions they had made proved worthless, leading to massive write-downs.
For the reasons outlined above, the last few years have been difficult for weed stocks. Their stock prices have declined, and their fundamentals have deteriorated. Now, however, they may have a chance to prove themselves. Trading for mere pennies, they are starting to look cheap. In this article, I will explore whether cannabis stocks can make a comeback, with a particular focus on Canopy Growth Corp.
Still losing money
One thing that’s abundantly clear about cannabis stocks is that they are still losing money.
In its most recent quarter, Canopy delivered:
- -$2.4 million in gross margin.
- A -$153 million operating loss.
- A -$261 million net loss.
As you can see, Canopy was solidly unprofitable in its most recent quarter. Even the gross profit – the profit metric that factors in the fewest expenses – was negative. It would take a lot of growth for Canopy to become profitable at its current level of expenses. Unfortunately, the company isn’t growing at all.
Growth turns negative
In its most recent quarter, Canopy Growth Corp did $113 million in revenue, down 27% year over year. All of its negative profit metrics got even more negative; for example, net income went from -$108 million to -$261 million. So we’ve got Canopy here losing increasing amounts of money on lower revenue. Not a good-looking position, and it’s not clear that Canopy can right the ship in time to turn things around.
Hope for the future?
As we’ve seen, Canopy Growth Corp is shrinking, isn’t profitable, and is seeing ever-widening losses. Certainly, things aren’t looking good. But could there be some encouraging signs, too?
Arguably, yes. WEED stock is by some metrics cheap at today’s prices. It trades just 0.8 times sales and 0.28 times book value. This is far cheaper than the vast majority of stocks you will find out there. However, the company’s sales are declining, and rapidly. The optical cheapness at today’s levels may not hold up in the future.
Foolish takeaway
Canopy Growth Corp stock hasn’t been doing well lately, and it’s no surprise, because the company hasn’t been doing well either. It is shrinking, and its losses are ballooning. Potentially, there is a “deep value” play buried in here at some level. But I personally wouldn’t go looking for it.
