Canopy Growth Stock Is Falling as Earnings Disappoint Wall Street

“Achieving profitability is critical and we have undertaken additional initiatives to streamline and drive efficiencies for our global cannabis business,” said CEO David Klein on Friday.

A turnaround is taking longer than expected, according to Cowen analyst Vivien Azar, who reiterated her Market Perform rating on the stock on Friday. “Until the company can show tangible evidence of improving financial performance, we do not see a meaningful catalyst to warrant share price appreciation,” she said.

The stock fell some 12% to $4.87 on Friday. Canopy stock listed in Toronto (CA WEED) fell similarly to C$6.18. Azar slashed her price target on the Canadian listed stock to C$6.50 from C$12.50 earlier.

Compared with last year, revenue from the Canadian recreational cannabis business declined 36% to C$38.9 million in the quarter while medical sales fell 4% to C$13.1 million. Canopy’s revenue from products such as BioSteel, which is a cannabis-based sports hydration drink, was down 3% to C$45.8 million versus the same quarter a year earlier. The company reported slowing marijuana sales in the fiscal third quarter as well.

“We think the cannabis market in Canada will continue to struggle,” said analyst Mike Hickey of Benchmark Research in a Friday research note. At the same time, he said, “we don’t see a federal legalization path for [the company] in the U.S. in the near term, leaving limited operational options.” Hickey rated the stock at Hold in that note, but then updated his call to Sell.

While the House has passed legislation decriminalizing cannabis on a federal level, experts believe widespread legalization won’t take hold in the Senate. However, a bill that prohibits regulators from penalizing banks working with cannabis businesses in stateswhere the drug is legal may pass later this year. It is called the Secure and Fair Enforcement Banking Act, or SAFE Act.

Thanks to this looming legalization question, Hickey also thinks the implied strategic value of U.S. cannabis acquisitions will hollow. The company acquired North America’s BioSteel in 2019 and signed a definitive agreement to acquire Jetty, a California-based clean vape technology company, just about a week ago.

Out of 20 analysts who cover the stock, 40% rate it at Sell or the equivalent, while 50% have it at Hold. Only two analysts have Buy ratings on the stock.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com