Canopy Growth's Business Is Improving. So Why Isn't the Stock Performing Better?

As seen in Canopy Growth's (NASDAQ: CGC) latest quarterly earnings release, a turnaround remains in motion. In its fiscal 2027's first quarter, ended June 30, 2026, the Canada-based cannabis company reported net revenue of $81.2 million CAD ($58.6 million), a 13% increase compared to the prior year's quarter. More importantly, the company reported higher gross margins, a 68% decrease in net losses, and 59% drop in adjusted EBITDA losses.

While not yet a perfect situation, things are clearly improving. So then, why is this marijuana stock still languishing under $1 per share? Chalk it up to two lingering issues, headwinds that have also contributed to the stock's 33% drop over the past 12 months.

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Still waiting on U.S. legalization progress

Earlier in 2026, it seemed as though this would be the year that legalization progress finally took shape on the federal level. Back in April, the U.S. Department of Justice and Drug Enforcement Administration rescheduled medical marijuana from Schedule I to Schedule III.

However, this wasn't the "game changer" speculators treated it as, as suggested by the short-lived rally among marijuana stocks during this time. So far, there's been little movement in getting recreational marijuana rescheduled. Although it would take further reforms to enable Canopy to start exporting its marijuana to the U.S., progress with rescheduling state-licensed recreational marijuana would at least bode well for Canopy's U.S. affiliate, Canopy USA.

Don't forget the dilution problem

Canopy Growth's second big issue is its continued reliance on newly raised outside equity capital. Over the past year, Canopy's share count has increased from 239.9 million to 423 million.

Most of this came from at-the-market (ATM) equity program sales of newly issued stock in mid-2025. A separate ATM program, authorized in August 2025, gives it the right to raise another $200 million. Given the stock's current market cap of $394 million, the company could severely dilute shareholders yet again.

As these two issues persist, keep skipping on Canopy Growth. Stick with stronger cannabis stocks, such as shares in profitable cannabis companies with minimal dilution risk, instead.

Thomas Niel 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.