Canopy Growth (WEED) (CGC) was trading about 12% lower before the market opened. The level was in addition to the 6.6% decline after the market closed on Wednesday. Yesterday was one of the worst days in investors’ history of owning the stock.
Why is Canopy Growth stock falling?
Canopy Growth fell due to its dismal first-quarter performance. The company reported it’s earnings on Wednesday. Canopy Growth missed the top-line and bottom-line expectations. The company’s net revenues were 90 million Canadian dollars. The company lost even more than what it made. Canopy Growth reported an adjusted EBITDA of -92 million Canadian dollars. The company also reported a net loss of 1.2 billion Canadian dollars, which was larger than 91 million Canadian dollars in the first quarter of 2019.
Making sense of the losses
Canopy Growth admitted that the losses were due to upfront capital investments in Canada and Europe. In an effort to calm investors, the company said that the investments were made to “generate future value.”
Unfortunately, larger-than-expected losses mean that the company might take longer to become profitable. Also, there’s uncertainty about whether the company will meet its profitability objectives anytime soon. According to the current earnings release, meeting the profitability objectives might a challenge.
Canopy Growth’s losses spoiled the party
The company’s mounting losses indicate less confidence from investors. Canopy Growth has been a favorite for several investors. The stock has also been enforced by famous stock watchers. For example, Jim Cramer has been too optimistic about his view on the company. Two days ago, he thought that the cannabis stocks were back in action.
Recently, Aphria (APHA) reported impressive quarterly results. OrganiGram (OGI) also posted strong results. The cannabis sector’s sentiment received the required optimism. However, Canopy Growth’s first-quarter earnings spoiled the party.
In the pre-market session, Tilray (TLRY) was trading almost 4% lower after losing 15% on Wednesday. Aurora Cannabis (ACB) was also trading 2% lower after falling about 8.6% on Wednesday.
Fear grips the market
The decline in the cannabis stock price on Wednesday wasn’t just due to weakness in the sector. The overall market was in the red. Growing fears of a recession gripped the market after the yield curve inversion. Usually, yield curve inversion is a precursor to a recession.