Most investors should probably avoid Canopy Growth (CGC 2.80%). There was early enthusiasm on Wall Street about the opportunity ahead for marijuana companies, but the reality didn’t live up to the excitement. At this point, Canopy Growth has been losing money for years, and the shares have declined so much that it is a penny stock.
And now the company is going to restate two years’ worth of earnings. If you are a Canopy Growth shareholder, or are thinking of becoming one, here is what you need to know right now.
Image source: Getty Images.
The marijuana business is still competitive
One of the big problems with the marijuana sector is that too many competitors jumped in too quickly. That resulted in intense competition in a market that was still young and evolving. Despite ongoing legalization, the result of this competition has been weak financial performance for companies like Canopy Growth. It is hardly alone, noting that Tilray Brands (TLRY 3.11%), Cronos Group (CRON +0.37%), and Aurora Cannabis (ACB 2.81%) have all been struggling to achieve sustainably profitability.
Worse, legal marijuana companies aren’t the only competitive threat. The illicit sale of marijuana didn’t stop just because the drug has become increasingly legal to sell. And since legal sellers such as Canopy Growth have to face regulatory costs and taxes, they are being undercut on price by illegally sold marijuana.
Only more aggressive investors should consider investing in a sector that remains complex and evolving. Further, money-losing penny stocks are risky, too, so Canopy Growth has multiple high-risk features to consider before hitting the buy button.
Canopy Growth is restating its results
And now the company has announced it will restate its financial results over the past two years. Investors would be entirely justified in being concerned about a company’s internal controls following a restatement, particularly if the company was losing money and the stock was trading in penny-stock land.
Today’s Change
(-2.80%) $-0.03
Current Price
$1.04
Key Data Points
Market Cap
$456M
Day’s Range
$1.04 – $1.08
52wk Range
$0.84 – $2.38
Volume
3.9M
Avg Vol
10M
Gross Margin
18.25%
Not surprisingly, Canopy Growth’s stock fell after the news was released. As investors digested the announcement, however, the stock has recovered. That, too, makes sense, given the explanation for the restatement. According to the company:
During the Company’s year-end financial reporting process for the fiscal year ended March 31, 2026, the Company identified a technical non-cash accounting error. The Company determined that certain share-settled warrants with exercise prices denominated in U.S. dollars, first issued during the fiscal year ended March 31, 2024, should have been classified as liabilities rather than equity instruments under applicable accounting standards, given the Company’s Canadian dollar functional currency. Accordingly, the Company should have recorded these instruments as liabilities on its consolidated balance sheets and measured them at fair value at each reporting date, with changes in fair value recorded in the consolidated statements of operations and comprehensive loss.
That is a mouthful, but the big story is that these changes aren’t expected to impact “revenue, gross margin, operating income/loss and cash flows from operations; Adjusted EBITDA or other key non-GAAP performance metrics used by management and investors; total assets, cash balances, liquidity, or ability to meet obligations or fund operations; compliance with any debt covenants, contractual ratios or borrowing capacity.”
When you step back, it appears to be a technical accounting issue that won’t negatively impact anything important. And, perhaps even more notable, the company believes the restatement won’t impact “the trajectory or narrative of financial performance.” In other words, if you bought Canopy Growth before the restatement news, there’s probably no reason for you to sell it.
Investors should still tread with caution with Canopy Growth
That said, shareholders should pay close attention to the restatement as more information becomes available. The big date is June 15, when Canopy Growth reports fiscal 2026 earnings. Investors considering buying the stock should probably wait to jump aboard until after the restatements are complete, just in case. Most investors, meanwhile, will likely be better off avoiding a money-losing penny stock that is in the middle of a restatement. Until the company is sustainably profitable, the risk/reward profile remains tilted in a worrying direction.
