Can Canopy Growth Stock Finally Recover in 2024?

Down 98% from all-time highs, Canopy Growth remains a high-risk investment in 2024 given its weak fundamentals.

| More on:
Worker tags plants at an industrial cannabis operation

Source: Getty Images

After touching all-time highs in October 2018, shares of Canopy Growth (TSX:WEED) currently trade 98.6% below record levels. Investor optimism was at its peak when Canada legalized marijuana for recreational use in October 2018. However, since then, the Canadian cannabis sector has been wrestling with industry-wide headwinds ranging from rising competition and oversupply of cannabis products to high inventory levels and negative profit margins.

In order to support their high cash-burn rates, several marijuana producers were forced to raise equity capital several times, diluting existing shareholder wealth significantly. Additionally, several established players, including Canopy Growth, acquired companies at a hefty premium to gain market share and expand their manufacturing capabilities. In the last few years, these overvalued acquisitions compelled cannabis producers to write down goodwill impairments that totalled billions of dollars.

Valued at a market cap of $911 million, Canopy Growth stock has burnt massive investor wealth in recent years. Let’s see if the cannabis stock stages a recovery in 2024.

Canopy Growth continues to struggle

In fiscal 2024 (ended in March), Canopy Growth reported a net loss of $675.8 million, while its sales totalled $297.1 million. In fact, the company’s operating losses of $309.6 million were higher than its sales, which indicates it is nowhere close to profitability.

Now, investors generally invest in unprofitable companies as they hope steady top-line growth will improve economies of scale over time. However, in the fiscal fourth quarter (Q4) of 2024, Canopy Growth increased its sales by just 7% year over year to $72.8 million.

While Canopy has narrowed its losses, its cash outflow totalled $282 million in 2024, compared to an outflow of $557.5 million in 2023. With $206 million in balance sheet cash, Canopy Growth would have to raise equity capital within the next 12 months.

Will the U.S. offer a comeback opportunity?

Cannabis stocks, including Canopy Growth, have gained momentum in 2024 due to the prospect of marijuana legalization in the United States. Shares of Canopy Growth have risen by 40% year to date as the U.S. is all set to declassify marijuana as a Schedule I drug.

To gain a foothold in the world’s largest cannabis market, Canopy Growth created a special-purpose vehicle called Canopy USA. While the two entities are currently separate, they are likely to merge if and when the U.S. government legalizes pot at the federal level.

Canopy USA has already acquired companies such as Acreage Holdings, Jetty Extracts, and Wana Brands and is focused on consolidating these assets to benefit from cost synergies and operational efficiencies.

The prospect of legalization might seem compelling to investors. However, Canopy Growth will still need to compete with established multi-state operators such as Green Thumb and Cresco Labs, which have a sizeable presence in several regions. Moreover, Green Thumb reports a consistent profit and is free cash flow positive, making it a much better investment option right now.

What is the target price for WEED stock?

Canopy Growth is forecast to narrow its loss per share from $8.79 in fiscal 2024 to $1.71 per share in 2025 and $1.21 per share in 2026. While its losses are forecast to decline, it is still a few quarters away from profitability.

Analysts tracking WEED stock have a 12-month average target price of $9.13 for Canopy Growth, marginally higher than its current price of $8.90. The risk-reward profile for Canopy Growth is far from ideal, given you can invest in several other fundamentally strong stocks in 2024.

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 recommends Cresco Labs and Green Thumb Industries. The Motley Fool has a disclosure policy.

More on Cannabis Stocks

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Cannabis Stocks

Could the Cannabis Bubble Re-Inflate?

Let's dive into the question of whether the Canadian cannabis bubble can re-inflate from here.

Read more »

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Cannabis Stocks

Should You Buy Canopy Growth Stock or Green Thumb Stock Today?

Let's dive into two cannabis giants, and which one may be the better pick for long-term investors.

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Could Aurora Cannabis Stock Finally Recover by Year-End?

Down 99% from all-time highs, Aurora Cannabis stock is focused on improving profit margins and expanding sales of its medical…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Are Pot Stocks About to Surge Again? 

With pot stocks making big moves of late, many investors are now asking whether the cannabis sector is worth investing…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Can Pot Stocks Aurora Cannabis and Canopy Growth Bounce Back in Q4?

Down over 99% from all-time highs, Canadian pot stocks such as Aurora Cannabis and Canopy Growth remain high-risk bets.

Read more »

Tech Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

These three stocks are easy buys for those who don't have all that much to spend, and want long-term growth…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Slow Burn: Is Aurora Cannabis Finally a Good Buy in June?

One of the benefits of choosing from some of the most beaten-down market segments like cannabis is that even a…

Read more »

Caution, careful
Cannabis Stocks

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.

Read more »