Canopy Growth stock price could crash to zero as bankruptcy risks rise

Canopy Growth (NASDAQ: CGC) stock price is loitering near its all-time low as investors worry about the company’s future. The cannabis stock was trading at $0.47 on Wednesday, meaning it has erased over 79% of value this year. It has dropped by more than 99% from its highest level on record.

CGC is in bankruptcy watch

Canopy Growth share price has been under pressure this year as concerns about its future remained. These concerns accelerated when KPMG dropped the company, citing ineffective internal controls over financial reporting. 

The auditor warned that the company did not have the appropriate number of trained professionals to handle reporting. Following the move, Canopy Growth hired PKFOD, a small accounting company to handle its audit. The company had previously delayed publishing its annual report.

I believe that Canopy Growth is on a path towards bankruptcy as business conditions worsen. Its annual revenue dropped to $298 million in the last financial year from the previous $408 million. It had made over $434 million a year earlier.

At the same time, losses continued rising to worrying levels. Its net loss in the last financial year came in at over $2.4 billion from the previous $264 million. Any company that is losing such amount of money is always at risk, especially in periods of tight liquidity.

Canopy Growth’s balance sheet has continued deteriorating. It ended last quarter with $580 million in cash and short-term investments. While this is a good number, it is worth noting that the company had over $3.9 billion in 2019. Its cash holdings have been falling every year.

Canopy Growth also has loads of debt. It had short-term debts of over $412 million and long-term debts of more than $554 million. Therefore, I suspect that the company will come under strains that could lead to bankruptcy. Remember that Canopy has been a major dilutor of shareholders as its outstanding shares jumped to over 463.7 million.

Canopy Growth stock price forecast

CGC chart by TradingView

Is it safe to buy CGC stock? The daily chart shows that it has been a sad collapse of the Canopy Growth share price. It is now hovering near its all-time low. The stock has moved below all moving averages while the Relative Strength Index (RSI) has fallen to the oversold level. At the same time, the Average Directional Index has jumped to 60, signaling that the bearish trend is strong. 

Therefore, I suspect that Canopy Growth shares will continue falling as sellers target the next support at $0.30.