Canopy Growth: Is Another Reverse Stock Split Inevitable?

Investors often get excited about stock splits. They bring a stock down to a lower price, which can lead to more trading and potentially a rally. A reverse stock split, however, can have the opposite effect. A company normally deploys this when its share price has fallen so low that it needs to consolidate shares to get it back above $1, to ensure it satisfies the stock exchange's requirements.

Canopy Growth (NASDAQ: CGC) is no stranger to reverse stock splits, having done one a few years ago. Now, however, with its share price declining sharply and back below the $1 mark, the inevitable question looms: Is another reverse stock split on the horizon for the cannabis company?

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Will Canopy Growth announce a reverse stock split this year?

Whether or not Canopy Growth deploys another reverse stock split will ultimately depend on how its share price does. That's because if it wants to remain listed on the Nasdaq exchange, it needs to get back up to at least the $1 mark -- if it gets to 30 consecutive business days of being below that threshold, it'll receive a notification from the exchange, at which point, it'll have 180 days to regain compliance. Thus, a reverse stock split may not necessarily happen this year, but it remains a distinct possibility within the next 12 months.

The last time Canopy Growth did a reverse split was in December 2023, when it did a 1-for-10 reverse split. Unfortunately, with the stock falling by around 80% since then, it's trading below $1 yet again.

Financials matter more than reverse splits

A stock split doesn't affect an investor's overall holdings and position in a company. If there's a reverse split, an investor would simply own fewer shares but at a higher average price. All it symbolizes is that a stock has been doing so poorly that it needs a reverse split to boost its share price, likely to meet the exchange's $1 minimum requirement.

The big picture for investors is that Canopy Growth just doesn't have a strong business. It's continually incurring losses, and its growth prospects aren't exactly promising. That's why the stock is in trouble and continues to fall: it's not a quality investment to hold on to. Regardless of whether another reverse split is coming or not, the safest option is likely to stay far away from this troubled stock, as there are plenty of better growth stocks to choose from.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.