It might sound strange now, but Canopy Growth (CGC) was once the hottest stock in Canada. Back in 2018, before legalization hit, the stock was soaring, as was its public profile. It seemed like…
every other day, you were hearing one story or another about the company’s meteoric rise. The $5 billion Constellation Brands deal, the expansion into Europe, the launch of Canada’s first Cannabis retail store. No matter where you looked, Canopy was always rising–in the stock market and in the public’s imagination.
Then, something changed.
In November 2018, cannabis was legalized in Canada. Almost immediately, cannabis stocks — including Canopy — started falling. Investors began to complain about these firms’ lack of profits despite their rapidly growing sales. Eventually, Canopy CEO Bruce Linton was fired after his biggest investor complained about rising losses.
Mounting losses
One of the biggest factors contributing to Canopy’s decline was its persistent losses. Because of a combination of asset impairment and poor operating performance, Canopy ran several quarterly net losses — ranging from a few hundred million dollars to over a billion. Canopy was already unprofitable before legalization, but the legalization-fueled sales boost took things to a whole other level. Suddenly you had Canopy growing revenue by more than 100% … and growing its expenses even more than that. Predictably, losses swelled.
Huge writedowns
A big part of Canopy’s poor performance was impairment, something that happens when a company decides that its assets have lost a ton of value. In the lead up to legalization, Canopy spent billions of dollars on buying up competitors, hoping to acquire a massive share of the market. Unfortunately, many of the assets Canopy bought proved worthless. As a result, Canopy ran several massive net losses that greatly exceeded losses from operations.
Even revenue is declining now!
It would be bad if a company lost billions of dollars because of a series of acquisitions that proved worthless, but if the company made it up to investors later with profits, perhaps those earlier losses could be forgiven. Unfortunately…
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