Shares of Canopy Growth (TSX:WEED) fell last week as the company announced it would be consolidating its shares in a reverse stock split. Shareholders will see their shares consolidate on a 1-for-10 basis, Canopy Growth stock stated. And investors were not impressed.
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What happened
The 1-for-10 consolidation came into effect last week as the company’s share price continued to trade below $1 per share. It has been quite the wild ride since hitting all-time highs near $70 per share. And with shares under that $1 mark, the company risked being taken off the Nasdaq.
Investors were certainly not impressed with the decision, trying to get out before the consolidation happened. Shares dropped 25% from $1.06 during Monday highs to about $0.75 per share after the news came out on Wednesday. Shares then remained stable before consolidating later on in the week.
But was it the right move? Canopy Growth stock has certainly been making a lot of moves over the last few years. Not all of them good. So let’s get into what investors could expect in the future from this once great company.
Still too many cooks in the kitchen
Canopy Growth stock accounts for about 60% of the sales in Canada when it comes to growing and selling cannabis products. However, the Canadian market still has many licensed producers at this point. Because of this, competition is fierce, and there is still quite a large black market for the products.
Canopy Growth stock is still on the path to reaching profitability in these trying times. While the company should hit mid-single-digit growth over the next 10 years, it’s going to be a rough ride. Though, to be fair, analysts believe it’s a ride that will eventually be successful.
The company may be dealing with black market activity, but that activity should eventually be worn down. Further, competition should ease as we continue to see the consolidation of the cannabis market in general. So what can the cannabis stock do to push their path to profitability in the meantime?
Getting in, getting out
Canopy Growth stock has tried to reach profitability in numerous ways. This included its non-THC BioSteel sports drink, which the company recently sold. Medical marijuana is lucrative, but only accounts for about 10% of sales.
As mentioned in previous articles, what is planned are United States endeavours. And the company has yet to see much movement on this front. Rights have been granted to use assets such as Acreage, Wana Brands, Jetty and others once the U.S. sees legalization. But cannabis remains illegal on a federal level, and with a U.S. election coming soon, doesn’t look like this will change anytime soon.
For now, a transaction to consolidate not just shares, but assets into a single holding company of Canopy USA remains on the table. But there has been very little movement here as well. Canopy Growth stock continues to face challenges from the Nasdaq and the Securities and Exchange Commission (SEC) over the move. So for now, we’re left to wait.
Bottom line
Canopy Growth stock is still in limbo. There could be share movement with the creation of Canopy USA, along with federal legalization. And while the company has made moves to diversify, it seems to have put too many eggs in the U.S. legalization basket – a basket that is getting more competitive as states legalize the product.
While profitability should be reached in the next year or two, it’s going to be another rough decade. Canopy Growth stock should see the other side, but unless you have the risk available in your portfolio, you may not want to be in on this stock that long.
