Despite a strong start following the legalization of pot in Canada, Canadian pot producer Canopy Growth Corporation (CGC) is doubtful about its ability to stay afloat as its loss-making streak continued in the first quarter.

While the company has taken several initiatives to strengthen its financial position through further reducing cash burn, monetizing non-core assets, reducing debt, and turning profitable, the success of these initiatives remains to be seen.

Although CGC reported net revenue growth of 3% year-over-year in the last reported quarter, a sequential decline is projected for its second-quarter sales due to seasonality.

Moreover, with an increasingly competitive market, it may be advisable to steer clear of this stock for now. Several key indicators justifying this bearish outlook are outlined below.

Analyzing the Financial Performance of CGC: A Timeline From 2020 to 2023

The trailing-12-month net income of CGC has shown a general downward trend and significant fluctuations from September 2020 to June 2023 based on the data provided.

• Net income was positive, with a value of $195.35 million at the beginning of the series in September 2020.
• A dramatic drop was noticed by December 2020 when net income turned negative to -$588.06 million. This downward trend continued into 2021, with a significant decrease of -$1.74 billion in March.
• In the second quarter of 2021, net income further slipped to -$1.24 billion in June, a bit of recovery compared to -$1.74 billion, yet the downtrend persisted.
• The magnitude of net income loss lessened steadily in the last quarter of 2021 and stood at -$427.54 million by December.
• However, starting from the second quarter of 2022, net income took a severe hit again, descending to -$2.78 billion in June.
• This downward trend continued to amplify, reaching its lowest point of -$3.28 billion by March 2023. A gradual recovery then followed, and net income stood at -$1.23 billion by June 2023.

Thus, the net growth rate, measured from the first reported net income value ($195.35 million in September 2020) to the last value (-$1.23 billion in June 2023), shows a significant decline overall, indicating financial struggles for CGC.

The trailing-12-month revenue data for CGC shows a fluctuating trend from September 2020 to June 2023.

• In September 2020, the reported revenue was $364.40 million.
• Experienced a steady increase, reaching up to $455.54 million in March 2021.
• A nominal decrease was seen in June 2021, with revenue dropping slightly to $450.74 million.
• The revenue peaked again in September 2021, reaching $458.51 million.
• After this peak, CGC embarked on a downward trend. It ended up at $438.58 million in December 2021, $406.50 million in March 2022, and $383.12 million in June 2022.
• This trend continued, with the revenue falling even further to $350.89 million in September 2022 and $331.55 million in December 2022.
• A sharp decline occurred by March 2023, with revenue hitting a low of $302.94 million.
• Interestingly, there’s a slight uptick towards the end of the series, with the revenue of June 2023 increasing a bit to $304.18 million.

As per the given data, the revenue of CGC has experienced an overall decrease of about 16.5% from its initial value in September 2020 to its last value in June 2023. More recently, the decline has become more severe, dropping about 34.3% between September 2021 and June 2023. This shows a general declining trend in CGC’s revenue over recent periods within the series as the company faces some challenges.

The following information displays the fluctuation and trend in gross margin for CGC over roughly three years:

• As of September 30, 2020, the gross margin was -23.60%.
• By the end of 2020, on December 31, it declined further to -29.30%.
• A significant shift was observed as of March 31, 2021, where the gross margin rallied to 12.20%.
• This improvement continued until June 30, 2021, reaching 15.30%.
• The gross margin dipped again by the end of the third quarter of 2021 to -1.70% and further depreciated to -4.30% by the conclusion of 2021.
• March 31, 2022, marked a substantial setback, with the gross margin plummeting to -37.10%; it further intensified to -44.90% by June 30, 2022.
• A slight recovery was seen at the end of the third quarter of 2022, where the gross margin improved to -30.50% but then declined to -36.10% by the end of 2022.
• The first half of 2023 indicated improvements. As of March 31, 2023, the gross margin increased to -25.80%, followed by a minor boost to -24.10% on June 30, 2023.

In terms of growth rate, there has been a negative growth from the starting value of -23.60% in September 2020 to -24.10% in June 2023. Despite some fluctuations, overall, the gross margin has worsened over the period, placing greater emphasis on recent data.

The trend and fluctuations in the reported Return on Assets (ROA) CGC reveal a concerning decline over the designated periods. The data spans from September 2020 to June 2023. Key points:

• In September 2020, CGC’s ROA was at its peak value of 0.028.
• The ROA shows a fluctuating but generally declining trend from -0.088 in December 2020 to -0.184 in September 2021.
• A significant drop is seen by -0.507 in June 2022, illustrating a severe decline.
• In December 2022, the ROA reached a low of -0.808, reflecting substantial financial hardship for CGC.
• The ROA dropped to its lowest recorded value of -1.059 in March 2023.
• A marked improvement was observed in June 2023, with the ROA recovering to -0.446, though still far from its initial positive figures.

From the first value (September 2020: 0.028) to the last value (June 2023: -0.446), a significant negative growth rate is detected, indicating a severe decrease in CGC’s profitability over the reviewed period. The more recent data suggests an attempt to recover, but CGC continues to operate at a negative ROA as of June 2023. It should be postulated that if this trend continues without corrective measures, the company may face major financial challenges.

CGC’s Unstable Recovery: A Deep Dive into Price Fluctuations and Growth Rates

• On March 10, 2023, the price of CGC shares was $2.05.
• A descending trend is seen from mid-March to late June, where the price diminished approximately every week.
• The lowest point was on June 30, 2023, when the share price was $0.46.
• Starting in July, there’s a sign of a slight recovery, and the price increased again, reaching $0.53 on July 14, 2023.
• However, the upward trend didn’t last long as the price decreased to $0.39 by July 21, 2023, then fluctuated through August.
• There’s a significant climb, with the price ascending to $0.68 on September 5, 2023.

If we look at the data from March to September, overall, it denotes a negative growth rate. Although there’s an apparent recovery in September, the overall trend from March to September is decelerating.

The accelerated decline from March to June was followed by an unstable recovery period, which was still below the initial price in March.

Still, the strong rebound in the first week of September indicates a possible change in the growth rate, which needs further observation for confirmation. Here is a chart of CGC’s price over the past 180 days.

Analyzing the Varied Performance of CGC’s Growth, Value, and Quality Dimensions

CGC has an overall D rating, translating to a Sell in our POWR Ratings system. It is ranked #136 out of the 160 stocks in the Medical - Pharmaceuticals category.

Here is a breakdown of its progression:

• Throughout the weeks of March 11, 2023, to April 29, 2023, CGC maintained a POWR grade of F. During this period, its ranking within the category fluctuated slightly, ranging from a low of 160 to a high of 163.
• From the week of May 6, 2023, there was a slight improvement in the POWR grade to D. This progressed till the week of July 15, 2023, with a slight fluctuation in its ranking, but it generally stayed within the 150s. The lowest rank it achieved during this period was 144 in the week of June 10, 2023. However, by the end of June 24, 2023, it increased back up to 159.
• There seemed to be a notable reduction in rank during September, hitting 134 as of September 2, 2023. But, it once again increased to 136 in the week of September 5, 2023.

The POWR Ratings for CGC along the three most noteworthy dimensions over time are as follows:

• Growth: This dimension consistently received the highest ratings over the period. It started at 74 in March 2023 and increased slightly to 75 in April, then experienced a small dip to 73 in May. By June, it matched the initial March value at 74. A strong increase was observed in July, with the Growth score reaching 84, before dropping minimally to 83 in September.
• Value: This dimension experienced the most significant fluctuation and upward trend. The Value rating started at a low of 8 in March and increased to 13 by April. There was a notable jump in May when the rating went up to 21. June witnessed further improvement, with the score soaring to 43. The value declined again in July to 30 but climbed back to 36 by September.
• Quality: Although not among the highest ratings, the Quality dimension showed a clear downward trend. Beginning at 27 in March 2023, it declined to 25 in April and rose slightly to 28 in May. But from June onwards, a continuous drop was seen - down to 22 in June, 19 in July, and hitting its lowest at 16 by September of the same year.

In conclusion, the Growth dimension consistently had the highest ratings throughout the observed period for CGC, while the Value dimension displayed a clear upward trend despite some fluctuations. The Quality dimension, on the other hand, showed a steady descending trend.

Stocks to Consider Instead of Canopy Growth Corporation (CGC)

Other stocks in the Medical - Pharmaceuticals sector that may be worth considering are Novartis AG (NVS), Novo Nordisk A/S (NVO), and Dr. Reddy’s Laboratories Ltd (RDY) -- they have better POWR Ratings.

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CGC shares were trading at $0.73 per share on Wednesday afternoon, up $0.05 (+6.68%). Year-to-date, CGC has declined -68.40%, versus a 17.34% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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