Market sentiment has once again soured on Canadian marijuana producers like Canopy Growth (NASDAQ:CGC). The past few years of poor results are still fresh in the minds of investors. This can be clearly seen in CGC stock, which rallied to a high of more than $50 from late last year to February.

Canopy Growth has been in a clear downtrend since then. The stock is down approximately 75% from all-time highs as investors grow ever more impatient. However, Canopy as a company is doing better than ever. Let’s discuss why.

The Financial Outlook is Improving for CGC Stock

The company’s recent financial results were promising. It had revenue of $136 million in the first quarter of 2022, a year-over-year (YOY) growth rate of 23%. Canopy’s growth was driven by a 17% increase in net cannabis revenue and a 39% rise in other consumer product sales.

Canopy had an Adjusted EBITDA loss of $64 million in Q1 2022, which was $29 million less than the same time last year. However, EBITDA during this period was impacted by a one-time $10.1 million impairment charge.

This charge should be discarded when evaluating the “steady-state” of a company’s financials. Adding impairment charges back, Canopy had a marked improvement of its EBITDA, ending the quarter at a loss of $54 million.

Canopy’s improving EBITDA is comforting. However, the company still needs to manifest sales in order to justify its current market capitalization. Fortunately for investors, the company has a solid plan to deliver growth and profits.

U.S. Cannabis Regulations Inch Ever Closer

Followers of the cannabis industry have been pinning their hopes on the legalization of marijuana in the U.S. at the Federal level for a while now. The grey area of legality has been a hindrance to the growth of the industry despite many states decriminalizing or legalizing marijuana usage.

However, it seems as though the U.S. is inching closer to Federal legalization.

Last July, Senate Majority Leader Chuck Schumer released a draft of the Cannabis Administration and Opportunity Act. This bill would make cannabis legal in the U.S. for recreational use.

The bill also gives cannabis companies access to essential financial services. Regulatory responsibility for the cannabis industry will be managed at the state level.

Hinted in the text of the draft proposal is the speed at which Congressional Democrats intend to push this legislation through. “Ending the federal prohibition on cannabis is becoming increasingly urgent as more and more states continue to legalize adult and medical use of cannabis,” it reads.

As one of the largest cannabis companies in North America, Canopy will use its market scale to compete in the soon-to-be-opened U.S. market. It recently completed its acquisitions of Ace Valley and Supreme Cannabis. These types of purchases are vital, as the entire industry is consolidating in order to be leaner. Post-merger Canopy will be second only to the combined Tilray (NASDAQ:TLRY) and Aphria with a market share of 13.6%.

According to the company, the integration process is moving smoothly. They expect cost savings in the range of $150 million to $200 million from 2022 onwards.

Investor Takeaway on CGC Stock

The trading of stocks in the cannabis industry has closely followed the hype cycle usually reserved for emerging technologies. Despite cannabis not really being new technology, investor psychology works the same way. There was a wave of excitement early this year, but inflated expectations have caused CGC stock to overheat.

CGC stock is clearly going through the “slope of disillusionment” phase of the cycle. There are clear signs of improvements within the company and the industry overall. However, investors are still throwing in the towel on CGC stock. This is a perfect opportunity for investors with a long-term mindset to enter a position.

On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.