Canopy Growth Is Closing in on Positive EBITDA. Should You Buy the Stock?

Canopy Growth (NASDAQ: CGC) is getting closer to something marijuana investors have been waiting years to see: positive adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). The Canada-based cannabis company recently reported Q1 fiscal 2027 net revenue of about $57.4 million, up 13% year over year, with growth across every major business. Cannabis revenue increased 14%, and growth wasn't limited to one market.

Canadian medical cannabis revenue jumped 22% to about $18.5 million, Canadian adult-use revenue increased 10% to $21.3 million, and international cannabis revenue rose 10% to about $6.9 million. That's a much healthier revenue picture than Canopy has produced in recent years.

Getting closer to positive EBITDA

Canopy's adjusted EBITDA loss narrowed to just $2.3 million, down from about $5.7 million a year earlier. That's a 59% improvement. Adjusted gross margin also increased from 25% to 31%. Indeed, positive adjusted EBITDA is now within striking distance. Management expects further improvement, particularly during the second half of fiscal 2027, as it completes the integration of MTL Cannabis, which Canopy acquired in March.

MTL was already a profitable, cash-generating cannabis business before the acquisition, producing about $60.2 million in trailing revenue and $7.9 million in operating cash flow. Canopy expects the combination to eventually produce roughly $7.2 million in annual cost savings, largely through operating efficiencies and the elimination of overlapping corporate expenses.

MTL also gives Canopy more of its own high-quality cannabis flower, which can be sold through its Canadian medical and recreational businesses and exported into international medical markets such as Europe. We're already seeing some of that benefit as Canopy said the MTL acquisition helped drive the 22% increase in Canadian medical cannabis revenue and 10% increase in adult-use revenue during the first quarter.

Those benefits should become more visible as integration expenses fade and additional cost savings kick in. Canopy has already generated more than $20.8 million in annualized savings from broader cost reductions since March 2025. Add the potential cost savings from the MTL acquisition, improving margins, and continued revenue growth, and management believes it can finally push adjusted EBITDA into positive territory in fiscal 2027.

But one number still concerns me: free cash flow. Free cash outflow actually worsened, climbing from about $8.3 million last year to $18.5 million. Management attributed much of that increase to working-capital timing, but Canopy still needs to prove it can consistently generate cash rather than burn it. Fortunately, the balance sheet provides some breathing room. Canopy ended June with approximately $241.4 million in cash and cash equivalents, while the company has extended its debt maturities to January 2031.

Should you buy Canopy Growth?

To be sure, I wouldn't buy Canopy stock simply because its adjusted EBITDA could soon turn positive. The company has spent years restructuring, cutting costs, and trying to repair its balance sheet. One strong quarter doesn't erase that history. But the latest numbers are encouraging. Revenue is growing again. Margins are improving. Losses are shrinking. And Canopy's cannabis businesses are growing across Canadian and international markets.

If you're willing to accept the risks associated with cannabis stocks, Canopy is becoming more attractive. But you might want to wait to see positive adjusted EBITDA followed by a meaningful improvement in free cash flow before getting aggressive.

Jeff Siegel 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.