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What happened

What was down is up again, as the topsy-turvy world of marijuana investing sent cannabis stocks soaring again on Thursday morning after Wednesday’s sell-off. As of 10:35 a.m. ET, shares of Aurora Cannabis (NASDAQ: ACB) leapt 13.5% higher, while peer pot producer Canopy Growth (NASDAQ: CGC) gained 22.5%.

And just as you’d expect, it’s the stock with the greatest gains that’s reporting the good news today.

So what

Bright and early this morning, Canopy Growth announced that it has decided to halt funding of its BioSteel Sports Nutrition unit, the dietary supplements business that was responsible for about 60% of Canopy Growth’s losses in fiscal Q1 2024. Furthermore, Canopy Growth is taking steps to prepare for an orderly sale of BioSteel’s assets, effectively closing down the division for good.

What will this mean for investors?

Well, for one thing, shutting down BioSteel “immediately eliminates significant cash burn for Canopy Growth,” says Canopy. Indeed, it will probably even generate some cash from the sale of BioSteel’s assets. And as for the rest of the company, ex-BioSteel, Canopy Growth says that by the end of this current fiscal year, “all remaining business units” at Canopy Growth will report “positive adjusted EBITDA.”

Now what

The reason Canopy Growth is making this move seems obvious: Canopy Growth is a marijuana business. This is implied in its name. It’s the primary reason marijuana investors buy the stock. And, in the current environment of easing regulations on marijuana sales in the U.S., marijuana offers the greatest chance for Canopy Growth to, well, grow strongly in the future.

So why not cut the dead weight, and double down on marijuana instead?

This, in a nutshell, is what Canopy Growth is doing: simplifying its business, reducing cash burn, and focusing on its core cannabis operations going forward. It sounds like a good plan to me.

And judging from today’s stock price explosion, investors seem to agree.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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