Canopy Growth Corp. (CGC), the largest cannabis company in the world by market capitalization, has seen its stock plunge by more than 50% over the last 11 months, dragging down its value from about $20 billion to $9.5 billion today. Now, the Canadian grower faces even more trouble ahead as it racks up an estimated $500 million in losses for the two-year period ending March of 2021, according to Oppenheimer analyst Rupesh Parikh, according to Barron’s as outlined in detail below. This has also slashed the value of Constellation Brands Inc.'s (STZ), 38% stake in the company, which it paid $4 billion for in 2018.  

Waning Bullisness

The woes at Canopy Growth, whose stock initially soared several-fold after it went public, illustrates both the massive operating and market challenges facing cannabis producers, and waning investor optimism for cannabis stocks such as Aurora Cannabis Inc. (ACB), Tilray Inc. (TLRY) and Cronos Group Inc. (CRON). Shares of Canopy are down 54% from their 52-week high, compared to Cronos and Aurora both down about 58%, and Tilray lower 88%. 

While Canopy has a first mover advantage and has plenty of cash on hand, Parikh, who initiated shares at market perform, thinks the stock is overvalued. Issues facing Canopy include weaker than expected Canadian cannabis sales and two consecutive quarters of sequentially lower cannabis revenue, which caused the stock to tumble in August and led to Constellation’s support of the ouster of Canopy co-founder and then-CEO Bruce Linton. Parikh listed 13 things that could hurt the company, including weak demand for Canopy’s new products.

Even after Canopy’s massive sell-off, Oppenheimer says the stock still trades at a premium to other cannabis stocks. Canopy trades at about seven times its estimated 2021 revenue, twice the industry average, per Parikh’s calculations. Aurora Cannabis, the industry’s leader by revenue, trades for under five-times 2021 sales, according to the analyst, per Barron’s. 

What’s Next?

To be sure, investor sentiment could turn bullish again with the same speed that it turned bearish. Cannabis remains a fast-growing industry, albeit susceptible to huge volatility, with a giant potential consumer market in the U.S. and globally. Even Parikh notes that if a handful of things go right, Canopy’s stock could move upwards. He views potential catalysts as the naming of a new CEO and the launch of new cannabis products like beverages and edibles in Canada later this year.