The cannabis sector has undoubtedly become one of the most frustrating sectors for growth investors in recent years. Indeed, many of the top cannabis producers Canada brought forth to the publicly traded markets have fallen considerably from their 2017–2019 levels, as investors looked toward other high-growth areas of the market for outsized upside.
Canopy Growth (TSX:WEED) is one such company, declining nearly 70% over the past 12 months.
Let’s dive into what’s behind this decline and whether investors should expect a recovery or not moving forward.
Image source: Getty Images
Fundamental weakness continues
To be fair, I cautioned investors during the past two rallies that the underlying fundamentals of companies like Canopy didn’t justify those moves. That was the correct directional view.
However, I’ve also begun to explore more recently how and why another cannabis bubble could form. The Trump administration is reportedly looking at reclassifying marijuana as a less-dangerous drug, and that would be good for the industry as a whole. But the question, as has always been the question for Canada-based cannabis producers, is whether the U.S. market will be open to imports in this sector.
Given the current trade backdrop with the U.S., most investors would be right to be skeptical of such a view. As such, investors are now stuck with assessing the growth rates of cannabis usage domestically and what the Canadian cannabis market looks like moving forward.
What does the future look like, then?
Well, Canopy’s overall revenue declined for its fiscal year 2025 by nearly 10%. That’s a big move down, signalling that demand for legal weed could be declining rather than increasing, at least in Canopy’s home market.
With its net loss growing 25% over the same timeframe and an unfavourable market for refinancing or issuing shares, this is a stock that’s in a pot of hot water at the moment.
Until and unless something drastic happens on this front, I think investors’ best bets are to focus on U.S. producers that may benefit from legalization or some form of regulatory easing in this sector south of the border. The Canadian cannabis market appears to be too difficult to invest in right now, in my view.
