Stocks of the world's biggest marijuana producer, Canopy Growth Corp, has fallen by over 50 percent in the last four quarters, diminishing its market value from around $20 billion to just $9.5 billion as of Wednesday.
The Canadian cannabis company is facing more issues ahead as it struggles to rebound from an estimated half-billion dollars in losses for the 2-year period ending March 2021, based on a report by Rupesh Parikh, an analyst at Oppenheimer.
Canopy's continued slump has also dragged down and reduced the market value of Constellation Brands Inc.'s 39 percent share in the company, which Constellation paid around $4 billion for last year.
With this, Parikh has cautioned investors to prepare themselves for big losses in the next few months, suggesting that Canopy's capacity to hit its target profits could be much difficult to achieve given its current status.
Constellation's financial infusion is being pulled down by Canopy's consistent operating declines. The company registered a negative operating cash flow of CAD158 million in its most recent quarter.
The Canadian pot maker has struggled in both supply shortfalls in key markets and oversupply problems in other sectors, which has led to a profit dilemma and poor margins. Its stocks have dropped 55 percent from its 52-week peak, compared to rivals Aurora and Cronos that both fell around 57 percent.
Problems that Canopy is dealing with include weaker than estimated cannabis sales in its own soil, and six straight months of substantially lower cannabis sales, which caused its shares to collapse last month and led to Constellation's backing of the ouster of Canopy co-founder and former chief executive officer, Bruce Linton.
Linton was removed from his post in July due in part to Constellation Brands' disappointment with Canopy's continued losses. Canopy is still in the process of searching a replacement for Linton's position.
Despite Canopy Growth's shaky corporate status and debatable direction towards profitability, Parikh says its stock is still competitively priced at seven times its profit expectation for 2021. In this connection, market observers suggest investors to not hold off buying stocks until the company's valuation normalizes, although he refrained from offering a specific price goal.
Meanwhile, market sentiment could turn positive again with the same optimism that it turned bearish. The cannabis business remains a fast-growing venture, albeit prone to large volatility, with a ballooning fan base in the United States and major parts of the world.