Is It Time to Dump Your Shares of Canopy Growth?

One of the hardest things to do in life is to admit you are wrong. When it comes to investing, this often manifests itself in holding on to a stock position that has a huge paper loss in the hope that you’ll get back to breakeven some day.

If that’s the position you find yourself in with Canopy Growth (CGC 2.38%), it might be time to dump your shares. Here’s why.

What goes up…

Canopy Growth’s stock had been trading on the Toronto Stock Exchange for some time before it listed on the New York Stock Exchange in 2018. That was a fairly important time for marijuana stocks, because the sector was benefiting from investor enthusiasm as more and more regions legalized the use of the drug.

Image source: Getty Images.

The stock took off like a rocket, hitting a peak of just over $568 a share. Unfortunately, the excitement around marijuana stocks has cooled dramatically, and Canopy Growth’s stock now trades hands for a touch over $1 a share. If you bought in at the highs, you are sitting on a massive paper loss. It would require an astounding rally to get investors back to breakeven if they bought the stock between 2018 and 2019 or even during a brief rally in 2021.

At this point, Canopy Growth is a money-losing penny stock. Add in a rapidly expanding share count, and you get shareholder dilution concerns, too. It’s just not a great investment story.

You can use those losses

The question you have to ask yourself is what you can do with the paper losses if you bite the bullet and dump the stock. One of the wonderful things about investing is that you can harvest losses to offset realized capital gains elsewhere in your portfolio. That saves you the tax hit of capital gains. Tax loss harvesting is used by savvy individual investors and is a staple of institutional investing.

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NASDAQ: CGC

Canopy Growth

Today’s Change

(-2.38%) $-0.03

Current Price

$1.14

Key Data Points

Market Cap

$396M

Day’s Range

$1.14 - $1.17

52wk Range

$0.77 - $2.38

Volume

641K

Avg Vol

27M

Gross Margin

18.25%

The best part is that individual investors can carry those losses until they are fully offset. So, selling Canopy Growth could afford you years of benefits. If you think Canopy Growth is going to make a comeback, by all means hold on to the stock.

But if you can admit that the opportunity you thought was there really wasn’t, well, dumping Canopy Growth could be a good idea and may help you trim your tax bill. That’s not a terrible outcome, and I’ll note that tax loss harvesting has helped me pull the trigger on lingering mistakes more than once.