Why Canopy Growth Shares Jumped Then Dropped Today

What happened

Canopy Growth (NASDAQ: CGC) shares have been on a roller-coaster ride so far this month. The stock seems to be on that same ride today. Initially the stock rebounded after dropping 10% yesterday. It jumped almost 11% in early trading, but reversed course with shares down by 10.6% as of 11 a.m. ET. The move comes as investors are digesting the company’s announcement of a new capital raise.

Shares of the Canadian cannabis company are still up about 100% in just the last month, though that is after a significant drop from its recent peak.

So what

Some of that drop occurred after investors had a negative reaction to news that Canopy would be selling shares in a private placement offering that will raise as much as $50 million for the company. Private placement share offerings aren’t available to the broader market. Though the shares are sold to accredited investors, common stock shareholder ownership is diluted in the process.

But bolstering the company’s balance sheet is a positive development that might explain why shares initially jumped today. After all, the company just reported a net loss of more than $31 million for its fiscal 2024 first quarterly period ended June 30, 2023. That follows several consecutive years of losses, including nearly $2.5 billion in fiscal 2023. But there’s another catch that shareholders spotted in a new Securities and Exchange Commission (SEC) filing today.

Now what

While the private placement offering doesn’t require registration with the SEC, the company did in fact register the shares yesterday. That was done to allow the new security holders to sell the shares publicly as they see fit.

Doing that won’t benefit Canopy’s balance sheet any further, but it could result in a tumbling share price if share sales mount. No one knows what the holders are planning, but some investors are bailing out ahead of any mass share sale, it seems.

There’s no need for immediate concern since the shares were sold at a price higher than where the stock is now trading. But it could be a long-term headwind for the stock.

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Howard Smith 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.

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