Why Canopy Growth's stock is down more than 25% today

Shares of Canopy Growth (WEED.TO)(CGC) fell more than 25 per cent on Wednesday, thanks to a one-for-10 stock consolidation that the Canadian pot producer says it needs to regain compliance with Nasdaq listing rules.

Once a top player in Canada’s high-flying cannabis sector, Canopy’s Toronto-listed stock traded in the mid-$60 range in 2018. However, pot stocks have plummeted in the years since Canada legalized the drug for recreational use, as the surging popularity of discount pot and government excise taxes compressed margins, and hopes for timely U.S. federal legalization faded.

Canopy Growth’s Canadian shares closed at $0.93 on Tuesday.

On Wednesday, the company announced an effective date of Dec. 15 for the consolidation of its shares on a one-for-10 basis. The post-consolidation shares are set to start trading on the Toronto Stock Exchange and the Nasdaq at market open on Dec. 20, subject to final confirmation from both exchanges. Canopy says the plan was approved by shareholders at a meeting on Sept. 25.

Toronto-listed shares fell 26 per cent to $0.69 as at 11:45 a.m. ET on Wednesday. Canopy’s Nasdaq-listed stock similarly fell to $0.50.

Under the Nasdaq’s minimum bid price requirement, companies whose shares trade below $1 for 30 consecutive business days receive a “deficiency notice,” and a 180-day window to regain compliance.

“By implementing this share consolidation, Canopy Growth expects to regain compliance with the Nasdaq’s bid requirement and further support the marketability of the company’s shares,” Judy Hong, Canopy’s chief financial officer, said in a statement on Wednesday.

Canopy isn’t the only struggling Canadian pot producer to shrink the number of outstanding shares to keep on the good side of the Nasdaq. HEXO, which was later acquired by Tilray Brands (TLRY), did a four-for-one stock consolidation in late-2020.

Canopy is also not the only formerly high-flying Canadian pot company currently on the Nasdaq’s naughty list this holiday season. Arch-rival Aurora Cannabis (ACB.TO)(ACB) is also listed as non-compliant.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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