Market corrections can be unsettling, especially when a stock that was once a high flyer suddenly tumbles. Canopy Growth (TSX:WEED) on the TSX is a prime example. Once the poster child of Canada’s legal cannabis industry, the TSX stock has taken a beating over the years. Investors are now left wondering whether it’s a bargain or a falling knife. So, let’s look into the TSX stock and see what we can find.
What happened
Canopy Growth was founded in 2013 and quickly became a leader in the cannabis industry. It was among the first companies to receive a federal license to cultivate and sell cannabis in Canada. When Canada legalized recreational cannabis in 2018, Canopy Growth was at the forefront, making big moves, including a high-profile investment from U.S. beverage giant Constellation Brands. By 2019, it was the world’s largest cannabis company by market capitalization, with investors betting on its global dominance.
Fast forward to 2025, and the story looks quite different. As of writing, Canopy Growth’s stock is trading at approximately $1.66 per share, reflecting a steep decline from its highs. The TSX stock’s market capitalization has dropped to approximately $257 million, a far cry from the multi-billion-dollar valuation it once commanded.
The TSX stock’s financial performance has been weak. In its third-quarter fiscal 2025 results, Canopy Growth reported a net loss of $121.9 million, or $1.11 per share. While this is an improvement from the $216.8 million loss in the same quarter last year, it still signals significant financial challenges. Revenue dropped by 5% to $74.8 million, with adult-use cannabis sales falling 10% to $21.2 million. The decline in the recreational segment is particularly concerning, as it was expected to be a major growth driver. The only bright spot was medical cannabis sales, which rose 16% to $19.6 million.
Improvements needed
The TSX stock’s profitability remains a major issue. The gross margin fell to 32%, down 4% from the previous year, due to higher costs related to new product launches and increased indirect costs. Despite efforts to cut spending and focus on more profitable segments, Canopy Growth has yet to turn the corner.
In a move to improve its cash position, Canopy Growth announced plans to sell up to US$200 million worth of stock. While this could help strengthen its balance sheet, it also means significant dilution for existing shareholders. The stock price immediately dropped 9% after the announcement, hitting an all-time low.
In the U.S., federal legalization remains stalled, which has limited opportunities for Canadian cannabis companies. Canopy Growth has taken steps to position itself for U.S. market entry, including the creation of Canopy USA, a subsidiary designed to acquire American cannabis brands. However, without legislative progress at the federal level, the company’s ability to benefit from the U.S. market remains uncertain.
Foolish takeaway
So, is Canopy Growth a bargain or a falling knife? While its stock price may look attractive compared to its former highs, the TSX stock is still facing financial and operational challenges. The recent dilution announcement, declining recreational sales, and ongoing industry struggles suggest caution. On the other hand, its push into the U.S. market, improved debt management, and growing international presence offer some hope for long-term investors.
For those considering an investment, it’s crucial to assess risk tolerance. Canopy Growth still has potential, but it’s far from a guaranteed recovery story. Investors looking for a turnaround play will need patience, while those seeking stability may want to look elsewhere. The cannabis industry remains volatile, and only time will tell if Canopy Growth can reclaim its former glory.
