Canopy Growth Is Eyeing Another Reverse Stock Split. Will It Be Enough to Light a Fire Beneath the Beaten-Down Pot Stock?
Key Points
On Sept. 25, Canopy Growth investors will be asked to vote on a reverse stock split.
Currently trading below $1, the company could risk being delisted if a reverse split isn't enacted.
Canopy Growth (NASDAQ: CGC) did a reverse stock split on Dec. 15, 2023. After that split, the stock fell by nearly 50% before there was a brief marijuana stock rally. Today, the shares are down by roughly 80% from their pre-reverse-split levels. And, notably, they are back below $1 per share. The company has to do something about this situation.
Why $1 is such an important share price
Major exchanges have rules that must be followed for a company to remain listed on the exchange. Often, maintaining a share price of at least $1 is a key requirement. Being on a major exchange not only makes it easier for investors to buy and sell stock but also allows a company to raise capital more easily by selling new shares. On top of that, being listed on a major exchange is a sign that a company operates a material business, which can help when working with banks or selling bonds. Being delisted is a major black eye, and it can have material financial implications for a business.
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That's why Canopy Growth did a reverse split in 2023. And with the shares back below $1, the company is proactively looking to hold another reverse split. The shareholder vote will take place on Sept. 25. In truth, a reverse split isn't a positive development. It is something that a company usually does because it has no better option.
Don't expect a magical transformation
Canopy Growth rallied shortly after its last reverse split. However, that was likely greatly aided by improved investor sentiment toward marijuana stocks at the time. Investors probably shouldn't expect a repeat performance. That said, Canopy Growth reported sales growth across all its divisions in the first quarter of fiscal 2027, with an overall top-line gain of 13%. While it lost money, the loss was 68% lower than the loss in the same quarter of the previous year. That's not exactly a good quarter, but it is a much better quarter.
If Canopy Growth continues to see performance improve, the reverse split it is asking shareholders to approve could help set the foundation for a brighter future. Of course, voting against the reverse split would likely make it much harder for Canopy Growth to run its business. So, in reality, shareholders probably have little choice but to approve the company's request for a reverse stock split.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.