Canopy Growth (NASDAQ: CGC) has gone through a lot of change over the past five years. But arguably one of the biggest moves it made was at the leadership position.
In July 2019, the company let go of Bruce Linton, who at the time was an icon in the Canadian cannabis industry and co-CEO with Mark Zekulin. Current CEO David Klein ultimately ended up taking over, with the aim of improving the company's operations.
Here's a look at how the company and the stock have fared since then, and if Canopy Growth has indeed become a better buy.
Under Linton, Canopy was a leading, growth-focused cannabis company
Linton was long seen as Canopy's visionary, and he helped set up its conditional agreement to acquire multi-state operator Acreage Holdings, planning to move forward with a merger once marijuana became legal throughout the U.S.
The company now plans to finally close on that acquisition, but that's only through the use of a special purpose vehicle, Canopy USA. Legalization is still no more of a certainty now than it was five years ago -- a scenario Linton likely didn't envision.
The problem with the previous CEO was arguably that Linton was too focused on sheer growth, and there wasn't enough priority given to keeping costs down.
Constellation Brands was a key investor in the business, and the cannabis producer's poor financials were hurting its own numbers. Klein came over from Constellation, presumably to help clean up the business and improve the financials.
The financials haven't shown significant improvement
Five years later, it's hard to say that Canopy is in much better financial shape. The company has grown its business, but that's also what you would expect in a fast-growing industry. It still, however, struggles with profitability.
The company recently wrapped up its 2024 fiscal year, which ended on March 31. Revenue for the year totaled 343.9 million Canadian dollars ($252.2 million). That's up 36% from the CA$253.4 million it reported for fiscal 2019.
What's astounding, however, is how little change there appears to be on the bottom line. This past fiscal year, it incurred a net loss of CA$675.8 million. In fiscal 2019, its net loss was CA$670.1 million.
The stock has taken a beating in five years
The most alarming number over the past five years is just how badly the stock itself has performed. It is down an incredible 98% over that time frame. Shareholders did enjoy some gains during 2021 when meme stocks and speculative investments were attracting investors, but by and large, it has been a disaster to hold for the past five years.
That's not to say, however, that it's because of a change at CEO. Canopy Growth might have followed a similar trajectory under Linton. But with that being said, it's hard to imagine a worse scenario for investors than what has taken place over the past five years.
Is Canopy Growth in a better position today?
Overall, there's no compelling reason to say that Canopy Growth is in a better situation today than it was five years ago. I've written about the stock many times during that stretch, and it seems like not a lot has changed.
Perhaps the biggest change is that it has probably lost its stature in the cannabis industry. Although it might still be one of the more recognizable companies in the industry, it's nowhere near being the largest. Tilray Brands generates more in revenue, as do multi-state operators such as Curaleaf Holdings and Trulieve Cannabis.
Canopy Growth's business hasn't shown much improvement over the years. That's not to say the blame falls on the CEO, because the company operates in a highly competitive market in Canada, where margins are razor-thin and profitability is incredibly difficult to achieve.
Nonetheless, it is a good example of how changing a CEO might not necessarily result in a significant change in a company's trajectory.
Five years ago, the company was eagerly awaiting legalization in the U.S., so it could enter the top cannabis market in the world. Today, it's still in much the same situation. And sadly, there's no reason to expect that the next five years will be any better.
Canopy Growth remains an extremely risky investment, and just because its valuation is lower and it appears to be a cheaper buy doesn't mean it's worth taking a chance on today. Investors need to tread very carefully with this pot stock; there's no guarantee things will turn around anytime soon.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Brands and Trulieve Cannabis. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
