Canopy Growth (NASDAQ: CGC) is one of the North American players in the cannabis industry. The company’s shares have seen massive fluctuations since going public in 2014 under the name Tweed Incorporated. The company's value reached nearly $20 billion in early 2021 but now sits at just $575 million.

That current valuation is despite the fact that over the last 12 months, shares are up 69%. The question is what catalysts are on the horizon for this rise to continue.

Let's explore the firm's operations to provide context. The discussion will include highlights from the fiscal Q1 2025 earnings, reported on Aug. 9, and a look at potential legal changes in the marijuana industry. Find out what key developments investors should be watching.

Canopy Growth: Canadian Business with Unreportable U.S. Operations

Canopy Growth operates through four reportable segments: Canada Cannabis, International Markets Cannabis, Storz & Bickel, and The Works. In the Canada Cannabis segment, the company produces and sells medical and recreational cannabis and hemp products within Canada. The international segment relates to sales in Australia and Europe.

Storz & Bickel makes and distributes cannabis vaporizers and accessories. The Works segment was sold at the end of 2023 and will not be included in future financial results.

Storz and Bickel accounted for 19% of net revenue, and international markets for 12%. Storz & Bickel was the only profitable segment. However, the Canada Cannabis and International Markets segments saw huge improvements in gross margin from 2022 to 2023. They improved 3,200 and 2,700 basis points, respectively.

Readers are probably wondering, “What about the United States?" Canopy operates in the U.S. indirectly through owning 72% of the outstanding shares of Canopy USA; however, the shares do not have voting rights. Current U.S. laws and stock exchange rules prevent consolidating the entity's results in Canopy Growth's financials.

Canopy Earnings: Still Unprofitable, But Margins are Improving

Canada Growth disappointed substantially in its latest earnings release, reporting a loss of $1.60 per share versus an expected loss of $0.48.

Revenue of $48.2 million was down 13% from the previous year and 8% below expectations. The company said this decrease was mostly due to the divestment of the Works segment, which accounted for 8% of revenue in 2023. The rest of this change came from Canada Cannabis, where revenues declined 6%. The other segments were essentially flat.

The company is moving closer to profitability, with the last 12 months' operating loss at its lowest level since the end of 2018. Gross margin and operating margin are also at their best levels.

Potential Legal Changes in the United States

In the spring of 2024, the U.S. Drug Enforcement Administration and the U.S. Department of Justice made moves to help change the classification of marijuana under the Controlled Substances Act. The proposed changes would reclassify marijuana from a Schedule I drug to a Schedule III drug.

However, this change would not federally legalize marijuana, and Canopy Growth would still face legal issues in the U.S. The federally legal sale of medical cannabis would also still require FDA approval. Canopy would only experience significant benefits from the legalization of marijuana, which Congress must pass.

With growing support for marijuana legalization, there's potential for bipartisan agreement on this issue. Recent legislation in states and broad public backing indicate a shift towards acceptance, suggesting that change could occur regardless of presidential election outcomes.

However, for now, investors should assume no big changes to Canopy's U.S. operations.

Analysts' Price Targets and What to Watch For

Among Wall Street analysts, Piper Sandler appears to be the only firm that has recently updated its price target to $2. This represents a downside of 71% from the current price.

Without transparency into the performance of the firm’s U.S. business and legalization not coming anytime soon, investors should exercise caution.

Canopy's first priority should be becoming profitable in its home country. Investors should continue to monitor this progress, which will help signal how successful Canopy could be if the U.S. market opens fully. The combination of these factors could vastly increase Canopy’s value.