I Wouldn’t Touch This TSX Stock With a 60-Foot Pole

I wouldn’t touch Canopy Growth Corp (TSX:WEED) stock with a 60-foot pole.

| More on:
Caution, careful

Image source: Getty Images

Though I am a big fan of stocks, on the whole, there are many individual stocks I wouldn’t touch with a 60-foot pole. Examples include bankruptcy cases, Russian stocks, and cannabis stocks. It’s not that there aren’t good opportunities in these sectors — there are — it’s just that the quality of the companies in them is so low on average that sifting through the dirt to find a diamond isn’t worth it. In this article, I will explore one TSX stock I wouldn’t touch with a 10- or even 60-foot pole.

Canopy Growth

Canopy Growth (TSX:WEED) is a Canadian cannabis company. It sells marijuana, hashish, edibles, and related products. There was a time when this company was one of the hottest things in town. In the lead-up to legalization in 2018, the company’s stock rallied to incredible highs. However, after legalization hit, it came out that the company was still losing money despite the revenue growth that legalization brought with it. Its stock started crashing then and has been in a secular downtrend ever since then.

No growth

There was a time when Canopy Growth was considered a growth stock. It’s in the company’s name, after all. So, it shouldn’t be surprising that the company did some growing in the old days. However, the growth is no longer in the picture. Because it had to wind down some money-losing business units a few years ago, Canopy’s revenue growth decelerated. In its most recent quarter, it delivered the following:

  • $121 million in revenue, up 2.1% year over year
  • $5.9 million in gross profit, improved from a loss in the year-ago quarter
  • A -$91 million operating loss, improved from $1.8 billion
  • A $41 million net loss
  • -$0.07 in diluted earnings per share (EPS), improved from -$5.24.

As you can see, there was hardly any revenue growth, and all of the earnings figures were negative. On the bright side, the losses narrowed as a percentage of revenue. That doesn’t change the fact that Canopy is rapidly burning through its cash pile, though. In 2018, it got a $5 billion cash infusion from Constellation Brands; as of the last quarter, it was down to $577 million. If it keeps losing money at this rate, then Canopy will eventually run out of balance sheet cash as well. Who knows what that could lead to?

Why Canopy’s earnings are negative

The main reason why Canopy keeps losing money is because it spent untold millions of dollars buying up competitors back in 2018, only for them to prove long-term unprofitable. Despite their lack of profits, these acquired companies nevertheless cost money to run. So, Canopy kept on incurring huge losses just to keep them going. Yet it was selling a commodity (cannabis) that didn’t have very high profit margins. So, it just kept on losing money year after year. This trend continues to this day.

Weed stock: The Foolish takeaway

I suppose it’s possible that Canopy could right its ship someday, but I wouldn’t bet on it. It’s losing money and running out of cash at the same time and is no longer able to attract multi-billion-dollar funding rounds from larger companies. I wouldn’t touch it with a 60-foot pole.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.

More on Cannabis Stocks

edit Cannabis leaves of a plant on a dark background
Cannabis Stocks

Why This Little-Known Cannabis Stock Could Double in 2024

This cannabis stock has already doubled this year since 52-week lows and could easily rise that much once more.

Read more »

Bad apple with good apples
Cannabis Stocks

1 TSX Stock I Wouldn’t Touch With a 420-Foot Pole

Down 87% from all-time highs, Cronos Group stock is a still a high-risk investment for long-term shareholders in 2024.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth: Buy, Sell, or Hold?

Canopy Growth (TSX:WEED) stock should make a killing on U.S. expansion, but investors will need to be very patient.

Read more »

Marijuana plant and cannabis oil bottles isolated
Energy Stocks

3 Canadian Value Stocks to Buy Right Now

Undervalued Canadian stocks such as Secure Energy should be part of your shopping list in May 2024.

Read more »

edit Cannabis leaves of a plant on a dark background
Cannabis Stocks

Here’s Why it’s Not Too Late to Buy Cronos Group Stock

The optimism about U.S. federal marijuana legalization and its anticipation are potent bullish triggers for the Canadian cannabis industry.

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Canopy Growth Stock Is on a Tear: Is it a Good Buy Now? 

Canopy Growth (TSX:WEED) stock surged by 80% from news out of the U.S., but is enough there without the news…

Read more »

Marijuana plant and cannabis oil bottles isolated
Cannabis Stocks

Prediction: These Could Be the Best-Performing Cannabis Stocks Through 2030

Quality cannabis stocks such as Green Thumb and Cresco Labs are positioned to deliver outsized gains to shareholders in 2024…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

The Big Mistake I See Cannabis Investors Making Over and Over Again

The news of marijuana slated to be legalized next year has seen a boost for cannabis investors, but they must…

Read more »