In need of a win to keep its slim hopes of advancing alive, Canada nearly caught a break late in the match when forward Marcus Haber went down in the Panama 18-yard box.
But although there was contact, the referee decided against awarding a penalty as Canada crashed out of the tournament thanks to a 0-0 draw in both teams' Group C finale.
"He's an honest player and he hasn't done anything wrong. He's been fouled inside the box, in my opinion, and I think it is a penalty kick," said Canadian interim head coach Colin Miller. "And I said to the referee also after the game that I thought it was a penalty kick."
Even with a win Canada would have needed a lopsided result in the Martinique-Mexico match to advance to the tournament's quarter-finals with a goal differential.
Beating Panama was a tall order for Canada's youth-laden squad. As Canada continues rebuilding it's men's soccer program, Miller is taking solace in the progression he saw over the course of the tournament.
"They have been fantastic to work with and I'm very grateful for the efforts of the staff and the players," said Miller, whose time as interim head coach comes to an end with Benito Floro set to take over the team next month.
"They have given Floro some hope that between the players that we have here and the players that were unavailable, that the Canadian landscape is brighter than some people would give us credit for. I'm very optimistic. The problem that Canada has and you saw it again today is in the attacking third."
Neither side created much in the way of chances in a game in which Panama needed just a point to win Group A.
Canada exits the tournament having not scored a goal after losses to Martinique and Mexico preceded Sunday's result.
Miller says Canada needs time to catch up to programs around the world.
"In Canada, and I think this is a general statement, I think we need to be more realistic in our expectations at the moment," said Miller, who was a member of the only Canadian team to qualify for the World Cup in 1986.
"We have players that are playing across the world and MLS has been a fantastic vehicle for the United States in terms of their development. We have now got to try to push our Canadian players forward into the first teams of the MLS in order to give them this sort of opportunity and I think that the more we do that, the better off we will be."
Canada was lucky to not go down a goal down in the 18th minute when defender Ashtone Morgan failed to clear a Panamanian cross. The ball was collected by Marcos Sanchez, who had time and space, but his curling right-footed effort went wide.
The Canadians had their best chance of the half 10 minutes later when Marcel de Jong's corner kick found defender David Edgar, but he was unable to make clean contact with his head.
Canada gifted Panama another opportunity in the 40th minute when Jairo Jimenez swung in a free kick that Pedro Pacheco couldn't clear properly. The ball fell to Blas Perez, but his header missed the target.
Panama controlled possession early in the second half but it was Morgan again who gave away a chance in the 48th minute when he headed the ball right to Jimenez. He let a long-range shot go that forced Canadian goalkeeper Milan Borjan to make a diving save to his right.
As the second half progressed, Canada controlled good portions of the game but couldn't find the decisive goal that would have kept their hopes of moving onto the quarter-finals alive.
Miller coached Canada in six international games in 2013 as interim coach. He leaves with two ties and four losses.
"I would not turn down, ever, the opportunity to coach our national team," Miller said. "It's been an absolute privilege to work with the staff and the players."