Canopy Growth Still Looks Broken -- But These 3 Numbers Suggest a Turnaround May Be Starting

Canopy Growth (NASDAQ: CGC) is no longer the market darling it once was. Shares of the cannabis maker remain down more than 95% from their all-time highs, the company continues to post net losses, and Canada's cannabis industry remains plagued by oversupply, pricing pressure, and intense competition.

That said, if you dig into the numbers, there are signs that the business may finally be stabilizing. This doesn't mean Canopy Growth has completed its turnaround. And no, profitability isn't guaranteed. But several key metrics suggest management's restructuring efforts may finally be gaining traction.

Image source: Getty Images.

Adjusted EBITDA losses have shrunk dramatically

One of the biggest challenges facing Canopy over the past several years has been its inability to generate sustainable operating profits. The company has spent years closing cultivation facilities, reducing headcount, exiting non-core businesses, and cutting operating expenses. Certainly, we've heard turnaround promises before, but the financial results are starting to reflect those efforts.

In its most recent quarter, Canopy reported an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) loss of approximately $2.17 million. While still negative, that's a dramatic improvement from the much larger losses the company reported just a few years ago, when quarterly adjusted EBITDA losses routinely exceeded tens of millions of dollars.

Management continues targeting positive adjusted EBITDA during fiscal 2027. Whether it achieves that goal remains to be seen, but the trend is moving in the right direction.

An uptick in medical cannabis

Another encouraging development is the continued growth of Canopy's medical cannabis business. Medical cannabis revenue from Canada increased 15% year over year, driven by growth in insured patients and larger order sizes.

For Canopy, this isn't trivial. Unlike the Canadian recreational market, which faces heavy discounting and price competition, medical cannabis markets tend to have higher barriers to entry, stronger customer retention, and better pricing dynamics.

This is the result of patients using cannabis to manage ongoing medical conditions, which can lead to recurring purchases and longer-term customer relationships. Medical products are also generally less exposed to the aggressive price compression that has weighed on many recreational cannabis producers.

The balance sheet looks stronger

Perhaps the most important number is Canopy's cash position. As of its most recent quarter, the company reported approximately $230 million in cash and cash equivalents. It also completed a roughly US$50 million debt prepayment, reducing future interest expenses and improving overall financial flexibility.

That's not a perfect balance sheet, but it does provide management with additional runway to execute its strategy. The company isn't being forced into a desperate financing situation, which gives it more time to focus on improving operations rather than simply raising capital.

Risks remain

Of course, there are still challenges. Canopy is still reporting a quarterly net loss, and the Canadian cannabis market remains oversupplied. Regulatory uncertainty continues to weigh on the broader industry, too. And while U.S. cannabis reform remains a potential catalyst, the timing and scope of any meaningful changes remain difficult to predict.

Competition is also intense. Larger operators and lower-cost producers continue to fight for market share, putting pressure on pricing across the industry.

The bull case

The bull case for Canopy isn't based on explosive revenue growth or a sudden industry recovery. It's based on the possibility that the company has finally stopped moving in the wrong direction.

A smaller adjusted EBITDA loss, continued growth in medical cannabis revenue, and a stronger balance sheet don't guarantee success. But they do suggest the business may be getting healthier after years of restructuring.

So if you're willing to accept the risks associated with marijuana stocks, these three numbers provide a reasonable argument that a turnaround may finally be starting.

Jeff Siegel 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.