Could cannabis and related products producer Canopy Growth (NASDAQ:CGC) actually get booted from the Nasadq exchange? This probably won’t happen next week or next month, but the five-year outlook isn’t great. As Canopy Growth engages in what some critics might call acts of desperation, CGC stock investors have a tough decision to make.
It’s stunning to consider that cannabis and related-products distributor Canopy Growth once had a market capitalization of around $20 billion. It’s less than $1 billion now, and this is an indication of how far Canopy Growth has fallen.
Investors with a five-year time horizon might be tempted to pick up some shares of Canopy Growth because they look cheap now. Meanwhile, long-standing shareholders may hope for an epic recovery. The preponderance of the evidence, however, doesn’t point to a happy ending for the unfolding story of Canopy Growth.
CGC Stock Could Eventually Get Delisted
Just as Canopy Growth’s market cap has cratered, so has the company’s share price. Believe it or not, CGC stock has fallen from more than $50 to less than $2.
That’s a problem, especially on a five-year time frame. The Nasdaq exchange has been known to sometimes delist companies if their shares trade below $1 for a prolonged period of time. Canopy Growth isn’t in imminent danger now but could be someday, given the share price’s trajectory.
Is there any reason to believe that Canopy Growth can stage a massive turnaround? The outlook isn’t positive, unfortunately. CEO David Klein admitted, “Canopy must reach profitability to achieve our ambition of long-term North American cannabis market leadership.”
Yet, Canopy Growth isn’t progressing toward profitability. As it turns out, Canopy’s $267 million net earnings loss in fiscal 2023’s third quarter is twice as deep ($151 million deeper, to be exact) than the net loss of the year-earlier quarter.
Canopy Growth’s Debt Issuance and Headcount Reduction
This year, Canopy Growth is attempting to bounce back, but the company’s actions may be seen as acts of desperation. First of all, Canopy is reducing its headcount.
I’m not talking about a 5% or even a 10% workforce reduction, which would be fairly commonplace in 2023. Rather, Canopy Growth is implementing a staff reduction of around 60%.
This isn’t something that a healthy business would typically do, and it could have a profoundly negative impact on Canopy Growth’s customer service, research and development, marketing and other areas.
Additionally, Canopy Growth is selling $150 million worth of “senior unsecured convertible debentures,” which is a fancy way of saying debt notes.
Certainly, this could help keep Canopy afloat in the near term. Yet, bear in mind that the $150 million will have to be repaid with a 5% annual interest rate. In other words, this isn’t free money; it’s a debt burden that Canopy Growth will have to bear.
So, Where Will Canopy Growth Be in Five Years?
I don’t have a crystal ball and can’t make any guarantees. However, I expect that Canopy Growth will be in danger of delisting from the Nasdaq exchange in five years. It wouldn’t surprise me, actually, if Canopy ends up on an over-the-counter (OTC) exchange in two years or less.
Moreover, due to Canopy Growth’s lack of a clear path to profitability, I believe CGC stock will be below 50 cents in five years. Hopefully, Canopy will stage a miraculous comeback and I’ll be proven wrong, but don’t count on it. Ultimately, the best move that Canopy Growth’s shareholders can make now would be to simply cut their losses.
On the date of publication, David Moadel did not have (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.