Here’s the problem with Canopy Growth stock

Canopy Growth (Canopy Growth Stock Quote, Chart, News, Analysts, Financials TSX:WEED) delivered a modest top-line beat in its third quarter, but continued dilution has weighed on the stock, according to Roth Capital Markets analyst Bill Kirk.

In a Feb. 10  note, Kirk reiterated his “Buy” rating on Canopy but lowered his price target to C$5.00 from C$8.00.

Canopy reported net sales of C$74.8-million, ahead of the C$70.8-million consensus estimate, flat year-over-year and up 12% sequentially. Adjusted EBITDA came in at a loss of C$2.7-million, marking the company’s narrowest quarterly loss to date and an improvement from negative C$3.0-million in the prior quarter.

“The relentless equity issuance and dilution have made upside in shares very difficult, but after heavy usage in 2Q/3Q, further dilution seems unlikely…”

“Equity issuance (345.5-million shares from 86.8-million in 2Q’25) to improve the balance sheet has overwhelmed the improving fundamentals, but should slow dramatically in forward periods,” Kirk said.

With debt maturities extended to 2031, he said improved operating performance “should accrue to equity holders.”

By segment, Canadian adult-use revenue was C$22.9-million, up 8% year-over-year, while Canadian medical revenue rose 15% to C$22.5-million. International cannabis revenue totalled C$6.2-million, down 31% year-over-year but up 22% sequentially. Storz & Bickel contributed C$22.9-million, down 9% year-over-year.

Kirk said Canopy’s international revenue continues to trail peers, limiting near-term profit potential, but said he expects a re-acceleration in coming periods.

“Canopy is nearing positive adj. EBITDA without capturing higher margin international opportunities,” he said, adding that as the international gap narrows and MTL begins to contribute, Adjusted EBITDA “should positively inflect.”

Consolidated adjusted gross margin was 29%, down from 32.8% in the prior quarter.

For fiscal 2026, Kirk now expects Canopy to generate Adjusted EBITDA of negative $15.3-million on revenue of $287.6-million, compared to prior estimates of negative $10.9-million and $285.5-million, respectively. For fiscal 2027, he forecasts Adjusted EBITDA of negative $2.1-million on revenue of $307.9-million, versus a previous estimate of positive $37.8-million on the same revenue base.

“With a reorganization that fosters more productive allocation of supply, Canopy should better capture the most profitable demand opportunities,” Kirk said.

While break-even Adjusted EBITDA remains elusive, he said third-quarter results suggest the inflection is approaching.

“The relentless equity issuance and dilution have made upside in shares very difficult, but after heavy usage in 2Q/3Q, further dilution seems unlikely,” he said.

Kirk maintains that valuation has been overly punitive given operational progress and strategic positioning, despite headwinds from changing reimbursement programs in Canada.

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