The cannabis market is one that’s starting to look a bit more bifurcated. Shares of many index funds tracking this sector are up big this year on some positive and noteworthy catalysts. However, investors in Canopy Growth (NASDAQ:CGC) aren’t in party mode, as CGC stock has continued to sink lower, dropping another 12% in today’s session.
On a year-to-date basis, shares of CGC stock have been cut more than in half. This move is excruciating for existing shareholders, given the entire sector is up around 17%, in line with broader market indices.
Today’s decline appears to be tied to an S-1 filing released by Canopy’s management team. In this filing, plans to sell up to 45.9 million shares are dragging Canopy’s stock price lower as investors bemoan the latest round of dilution.
Let’s dive into what to make of this news and whether Canopy Growth is an optimal way to play this sector.
Cannabis Stocks Remain Hot, but CGC Stock Is Not
Canopy Growth’s mantle as one of the largest players in the Canadian cannabis sector previously led its stock price to see incredible surges in the 2017/2018 bubble in this sector. Incredible and fantastical growth projections were put forward not only for the Canadian market but the global cannabis market as a whole. Once Canada legalized pot in 2018, the rest of the world would follow. Or so we were told.
Since then, demand hasn’t materialized as many thought. Regulators in the U.S. haven’t made much headway (until recently) on pushing forward cannabis-friendly legislation. Accordingly, it’s been a race to the bottom, with CGC stock now trading below $1 per share, a level many thought couldn’t be possible for the once-massive cannabis behemoth.
Canopy’s capital-intensive loss-generating core business of producing and selling cannabis to the wholesale market has turned many investors off. In this environment, investors want to see profitable growth. And while there are some intriguing verticals Canopy is exploring in the value-added corners of the cannabis market, overall sales volumes in these more profitable niches haven’t really materialized as many hoped.
With this latest stock sale, it’s clear Canopy is treading water. U.S. investors looking at this space may be more enticed by multi-state operators (MSOs), which already have a footprint in what will eventually be the world’s largest cannabis market. Thus, for now, Canopy Growth stock remains ice-cold relative to its peers.
On the date of publication, Chris MacDonald 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.