The election of the Justin Trudeau-led Liberals to a majority government in 2015 brought the promise of legal recreational cannabis in Canada. Cannabis stocks were scorching hot, making fortunes for opportunistic investors in a relatively short amount of time.
Canopy Growth (TSX:WEED) proved to be one of the most sought-after cannabis stocks in the second half of the 2010s. The company was geared up to become Canada’s top cannabis producer. At the time, some investors believed that this would essentially be a license to print cash. However, the realities of recreational legalization since 2018 have been a major buzzkill for this sector.
Canada officially legalized recreational cannabis on October 17, 2018. At the time, some investors might have thought it a solid idea to put $10,000 into a top cannabis stock like Canopy Growth. How much would that investment be worth today? Let’s find out.
How has Canopy Growth performed over the past year?
Shares of Canopy Growth have jumped 2% month over month as of close on Wednesday, August 16. However, the cannabis stock has plunged 83% so far in 2023. The stock is down 90% in the year-over-year period. Investors can see more of its past performance with the interactive price chart below.
It is not hard to see that Canopy Growth has passed through a rough patch since its brief rebound in late 2020 and early 2021. At the time, there was hope that the cannabis industry could come out of the pandemic with renewed momentum. Unfortunately, reality once again dashed the hopes of the faithful.
Cannabis in Canada: What went wrong?
From the outset, the pursuit of recreational cannabis in Canada was popular, but it was not without detractors in the political arena. The Trudeau-led Liberals ultimately passed the administration of legal recreational cannabis to the provinces. This bureaucratic back-and-forth bred confusion among consumers and frustration among those who sought to become business owners in this new market. The opening months of legalization were plagued with a lack of supply, which allowed the black market to pick up the slack.
Today, the cannabis industry in Canada has the opposite problem. There is now a supply glut. Meanwhile, the legitimate cannabis market has made headway, but a relatively large black market has endured. A recent report from ATB Capital Markets suggested that sales of adult-use cannabis in Canada had slowed more quickly than expected. The report warned that slower growth meant that the market could wind up much smaller than originally anticipated.
Where does Canopy Growth go from here?
Canopy Growth released its first quarter (Q1) fiscal 2024 earnings on August 9. Net revenue climbed 3% year over year to $109 million. Indeed, all business segments at Canopy Growth delivered sequential revenue growth in Q1 compared to Q4 of fiscal 2023.
This company has not been able to achieve profitability at the time of this writing in the 2020s. Canopy Growth has been less keen on predicting when it expects to become profitable going forward. That should send off some alarm bells among investors. It reported cash, cash equivalents, and short-term investments of $571 million at the end of Q1. The company has continued to bleed cash in this sector, which is increasingly worth concern.
Is there any reason to buy this cannabis stock today?
On October 17, 2018, Canopy Growth stock closed at $50.69. At the time, $10,000 would allow investors to snatch up 197 shares of the cannabis stock worth $9,985.93. Canopy Growth stock closed at $0.51 on Wednesday, August 16. That means its shares have plunged roughly 99% in a nearly five-year period. Those same 197 shares would be worth just over $100 at the time of this writing. An investor who took the plunge in October 2018 would have seen their investment virtually obliterated.
There are just too many red flags for me to recommend Canopy Growth stock in the summer of 2023. Canada’s cannabis market is dysfunctional. Moreover, federal legalization in the United States appears as remote as ever. I’m looking just about anywhere else for growth today.
