Canopy Growth Stock Jumps 20%: Here’s What Happened

Canopy Growth stock (TSX:WEED)(NASDAQ:CGC) popped 20% on Monday from an announcement made by another cannabis producer.

| More on:
A person holds a small glass jar of marijuana.

Source: Getty Images

Canopy Growth (TSX:WEED)(NASDAQ:CGC) saw shares jump 20% on Monday, as the United States looks like it may be taking yet another step closer to marijuana legalization — at least, that’s what the chief executive officer (CEO) of fellow cannabis producer Tilray stated.

Tilray CEO Irwin Simon believes legalization could hit the U.S. in the next few years, believing it to be a US$100 billion opportunity for growers of the product in Canada. And while it’s true that legalization isn’t in the U.S. yet, Simon believes it should happen very soon thanks to the strong performance in Canada.

What happened to Canopy Growth stock?

Now, you’ll be curious as to why I’m focusing on Canopy Growth stock if this was an announcement by the Tilray CEO. The fact remains that when cannabis legalization happens in the U.S., Canopy Growth will remain the top choice of cannabis investors. It has several acquisitions waiting in the wings to come online as soon as that happens.

The current bill being sent through congress in the U.S. is unlikely to lead towards legalization. But the SAFE Banking Act passed last month, and this is another step closer to agreement that federal legalization could be upheld. That’s especially true, as 19 states have legalized marijuana use.

Still unprofitable

But it remains that while it’s waiting, Canopy Growth stock is burning through cash. This led to closures across Canada and the U.S., with a huge reining in of its spending. Further, Canopy Growth stock management recognized it needed to work towards profitability. This is why it continues to focus on its BioSteel drink, which the company says is almost at the point of profitability with revenue surging 169% year over year.

Still, while this was some good news along with its cost-reduction program, it remains far from profitable. Net revenue came in at $110 million for the first quarter down 19% year over year. This came with an enormous $2.1 billion loss, with $1.7 billion from goodwill writeoffs. So, the question is, how long will investors have to wait for a recovery?

Now what?

Canopy Growth stock could be a strong long-term purchase. But it’s unclear at what price and when that purchase will turn to the black. Even after the strong performance yesterday at a 20% jump, shares were back down on Tuesday, dropping 4% as of writing.

For now, Canopy Growth stock will remain focused on any method of creating cash flow it can. In Canada, this includes responding to the oversupply of mediocre cannabis. Instead, it will focus on creating premium products it can sell for a higher price.

But don’t think that this means it’s moving from the U.S. market. CEO David Klein commented that the country still looks like it’s the best and largest opportunity for growth in the entire world. It’s just taking longer for the market to evolve than Klein originally hoped.

With shares down 58% year to date, I believe investors would agree.

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 Amy Legate-Wolfe has positions in Canopy Growth Corp. The Motley Fool has no position in any of the stocks mentioned.

More on Cannabis Stocks

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 »

Worker tags plants at an industrial cannabis operation
Cannabis Stocks

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.

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 »