Canopy Growth's (CGC 2.41%) share price is getting hit hard in Wednesday's trading. The marijuana stock was down 23.2% as of 10:45 a.m. ET, according to data from S&P Global Market Intelligence.
Canopy Growth published a press release before the market opened today announcing that it will carry out a 10-for-1 reverse stock split. The move will allow the company's stock to continue trading on the Nasdaq stock exchange, but it seems some investors are worried that the reverse stock split is a sign that the business and its share price could be on a potentially irreversible long-term slide.
Investors aren't happy with Canopy's move
According to Canopy's press release, the 10-for-1 reverse stock split is scheduled to become effective prior the market's open on Dec. 20. The move should push the company's share price above the $1 threshold needed to continue trading on the Nasdaq stock exchange.
While the reverse stock split was authorized by the company's board of directors on Sept. 25, today's announcement about the capital restructuring move comes with an important detail that shareholders are likely unhappy about.
When the capital restructuring is completed, investors will not receive any fractional shares if their number of shares is not a multiple of 10. Per the press release from today, "Any fractional Common Shares arising from the Consolidation will be deemed to have been tendered by its registered owner to the Company for cancellation for no consideration."
This means that if a shareholder owns 109 shares of Canopy stock, they will receive only 10 shares of stock on a reverse-split-adjusted basis. No fractional shares will be issued for the extra nine shares owned by the investor.
What comes next for Canopy Growth stock?
Following the restructuring, Canopy Growth should be able to continue trading on the Nasdaq in the near term. That's ostensibly good news for shareholders, but it's a complicated situation.
Reverse stock splits tend to reduce the overall trading volume for a stock. In turn, this can make it more difficult for buy and sell orders to be placed and met at the prices desired by investors. Reverse stock splits are also typically used by struggling companies with struggling stocks -- and Canopy Growth falls into that category.
The cannabis industry has become fiercely competitive, and these pressures seem unlikely to dissipate any time soon. A glut of production in the legal market has had the effect of pushing prices down and hurt profitability for producers and vendors. Legalization and decriminalization measures and a trend toward increased social acceptability have also removed some pressures on the black market.
