Stocks to sell

Canopy Growth Corporation (NASDAQ:CGC) stock is losing luster on Wall Street due to its inability to deliver profits over the last two years. CGC stock momentarily zoomed on the hope of full legalization of cannabis in the U.S. However, the timing of it being completely legalized remains uncertain. CGC management has high expectations for the viability of cannabis businesses in the U.S. As such, Canopy Growth already has agreements in place to buy Acreage Holdings (OTCMKTS:ACRHF) and Wana Brands.

Most Canadian marijuana companies have struggled to generate profitability despite legalization of cannabis in the country. An overestimation of demand for marijuana, especially in smaller markets outside Canada, led to disappointing results. Other factors include delay in opening of cannabis retail stores and cheaper rates.

Canopy Growth is one of the largest medical cannabis players in Canada with operations in over a dozen countries across the world. The company has a partnership with alcoholic beverage giant Constellation Brands (NYSE:STZ), which holds a 38% stake in the company.

CGC enjoys 6% market share. However, based on Stifel estimates, retail market shares of the firm have been shrinking from prior months. In the third quarter (Q3) of 2022, its net revenue declined 8% year-over-year to $141 million CAD. Adjusted EBITDA loss was $67 million CAD, almost the same as last year’s loss of $68 million CAD.

In its effort to reduce costs and return the company to profitability, management announced to cut 250 jobs, or roughly 8% of its work force, in the last week of March 2022. In addition to this, Canopy Growth plans to contractually take up manufacturing assignments for a few of its products. Other measures to bring efficiencies include closing facilities, lowering cultivation and other expenses. The company expects these cost containment initiatives to bring savings in the range of $100 million CAD to $150 million CAD (or $77.98 million to $116.99 million, respectively) over the next 12 to 18 months. This is different from the savings of $150 million CAD to $250 million CAD announced earlier. The company realized cost savings of $85 million CAD at the end of Q3 2022.

Even with these cost cutting measures in place, the company is not expected to generate profits until its revenues increase substantially. The lack of any visible growth makes investments in CGC stock an unviable option. I would recommend investors stay away from this stock. However, the stock is worth keeping on the radar for any potential improvement in margin.

On the date of publication, Sakshi Agarwalla 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.

Sakshi Agarwalla has more than eight years of experience writing equity research reports and preparing financial models for companies across various industries, as well as writing newsletters and financial articles. Recently, she assisted her Fund manager in executing trades, preparing weekly, monthly NAVs and writing newsletters. She has a postgraduate degree in finance and has completed CFA.

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