Canopy Growth (TSX: WEED) has been through enough ups and downs to test even the most patient investor. Once a market darling of the cannabis boom, the cannabis stock saw its share price collapse more than 75% in the past year. But under the surface, there are signs that this stock, now firmly in turnaround mode, could reward those willing to look past the short-term noise.
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What happened
The first quarter of fiscal 2026 gave investors a taste of what a more disciplined, focused Canopy can deliver. Net revenue climbed 9% year over year to $72.1 million, with Canadian adult-use cannabis sales surging 43% thanks to expanded distribution and hot-selling products like Claybourne infused pre-rolls. Medical cannabis also posted double-digit growth in Canada, while international revenue edged higher despite some softness in Australia. These numbers show a cannabis stock that still has strong demand for its products in both domestic and global markets.
The problem remains profitability. Gross margins slipped to 25% from 35% a year ago, largely due to product mix shifts toward higher-cost manufactured goods and lower sales in high-margin Poland. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was negative $8 million. That’s worse than last year, although free cash flow outflows improved sharply as SG&A expenses dropped 21%. Management already hit $17 million of a targeted $20 million in annualized cost savings, and more efficiencies are on the way, particularly in automation and production capacity.
More to come
One of Canopy’s biggest levers is margin improvement. The cannabis stock is investing in automation technology, expanding pre-roll joint production, and pushing for bulk cannabis sales in Canada and Europe. These moves should boost profitability without relying solely on revenue growth. International supply chain upgrades are also expected to improve margins in Europe in the second half of the fiscal year. If those efforts take hold, the EBITDA picture could shift faster than skeptics expect.
Storz & Bickel, Canopy’s vaporizer division, had a tough quarter with revenue down 25% year over year. Consumer spending weakness and lapping a strong prior year weighed on results, while gross margins dropped to 29% from 39%. But the division is cutting costs and preparing to launch a new vaporizer later this year, which could reignite interest. Given the brand’s reputation, a successful launch could provide a boost in both sales and margins in fiscal 2027.
Considerations
The balance sheet is stronger than many assume. Canopy ended the quarter with $144 million in cash and a current ratio of 3.1, giving it breathing room to execute its strategy. Debt remains at $328 million, but with disciplined capital allocation and cost control, the cannabis stock can sustain its operations while pursuing growth initiatives.
Risks are still very real. The cannabis sector remains fiercely competitive, and regulatory changes can shift the playing field overnight. And Canopy has yet to prove it can generate sustained profitability. Investors should also be ready for continued volatility, especially with such a small market cap compared to its early days.
Bottom line
But for those willing to be patient, there’s a case to be made that Canopy Growth is quietly rebuilding the foundation for long-term success. Market share gains in Canada, steady medical demand, a growing European footprint, and the potential for margin expansion give it multiple paths forward. If management continues to deliver on cost cuts and executes on its product strategy, the current stock price could look like a bargain a few years down the road.
For now, it’s not a quick trade; it’s a waiting game. And if there’s one thing Canopy has shown in recent quarters, it’s that the pieces for a turnaround are finally starting to click into place.
