It’s been a great month or two for Canopy Growth (TSX:WEED), with shares of the cannabis stock continuing to climb on the back of some positive news — not just for the company but for the United States.
But is it enough? Let’s look at what’s been going on with Canopy Growth stock and whether now is the time to buy or not.
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What happened?
First let’s get into what happened for Canopy Growth stock to rise so far. The company saw a surge in share price by up to 80% on the back of cannabis-related news in the United States. News hit the headlines that the Drug Enforcement Administration (DEA) would be going forward with reclassifying marijuana.
This is huge news and something the Biden administration has been working on since coming into office. While many states now legalize marijuana, it is still classified federally as a Schedule I substance by the DEA. This classification puts it in the same category as strong substances like heroin.
Now, the DEA should announce soon that it is looking to reclassify the drug as a Schedule III substance. This would put it in the same category as something like Tylenol with codeine — still a controlled substance, but with far less attached to it, and that includes stigmas.
Yet, there are still hurdles to overcome. As of now, this is just rumour. The DEA will have to confirm this and then go on to public hearings. Furthermore, the reclassification likely wouldn’t come down until late this year or, indeed, next year. And even then, should former president Trump be reelected, he could choose to veto the move.
Is enough already there?
So, the question is whether there is already enough reason to invest in Canopy Growth stock. Even without all this news coming from the United States. It’s unclear. The company has certainly been moving ahead with a focus on U.S. legalization. This includes acquisitions that are coming online and would prepare the stock for growth.
But what about earnings? Over the past few quarters, we can paint a clearer picture of whether Canopy Growth stock looks strong enough as a company to invest in. For that, we’ll go back over the last three quarters, with the fourth-quarter and full-year earnings coming up for Canopy Growth stock.
During the first quarter of 2023, the stock reported revenue of $108.7 million, with a net loss of $41.9 million and free cash flow at a loss of $150.7 million. By the second quarter, net revenue fell to $69.6 million, with a net loss rising to $148.2 million and free cash flow improving to a loss of $67.1 million. So, it wasn’t looking great.
However, there were some improvements by the third quarter. Net revenue rose to $78.5 million, though the net loss widened to $230.3 million. Free cash flow also improved further, however, hitting a loss of $33.9 million.
Bottom line
Despite a lot of improvements and a lot of news from the U.S., Canopy Growth stock continues to trade at a hefty loss. That being said, it’s focusing more on its profitable businesses and could achieve profitability quite soon — especially if the company is able to further expand in the United States. So, while it may not be a stellar buy at the moment, continue to keep your eye on Canopy Growth stock.
