Marijuana grower Canopy Growth (NYSE:CGC) will go through a 1-for-10 reverse stock split on Dec. 15.
Management called this a “share consolidation.”
The move is necessary because the stock has been selling for under $1/share and will be delisted if that isn’t corrected.
Canopy opened this morning at about 59 cents per share, its market capitalization falling below $500 million. Shares are down over 25% today and 75% in 2023.
A Marijuana Headache
Like all the pot stocks, Canopy has been hurt by slow moves toward legalization in the U.S. and competition from illegal cannabis, indistinguishable from the legal stuff. Even Colorado, a pioneer in legalizing marijuana, has seen slumping sales this year.
Canopy seemed overpriced to me when the pot stock craze was at its height. In 2019, Canopy brought in an executive from Constellation Brands (NYSE:STZ) to oversee its move into edibles and beverages. Canopy also bought a sports nutrition company, BioSteel, to infuse its product with CBD oil. BioSteel filed for bankruptcy and was sold off early this month.
Constellation, whose Modelo Beer is now the leader in U.S. case sales, put $4 billion into Canopy in 2018. Since then, Constellation has taken write-offs, sought to disentangle itself from Canopy and let warrants to take a majority stake expire.
Canopy, which reports financials in Canadian dollars, lost $228 million, 32 cents per share, on revenue of about $60 million for the quarter ending Sept. 30. It listed $177 million in cash on its balance sheet. (I converted Canadian results to U.S. dollars based on the Dec. 13 exchange rate.)
Rival Tilray (NASDAQ:TLRY) has seen the writing on the wall, becoming a brewer with regional craft beers. This has kept Tilray from Canopy’s penny stock fate, but shares are down 34% this year.
CGC Stock: What Happens Next?
There’s a limit to the marijuana market. Investors got high on their supply five years ago and are now paying the price.
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As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
