The marijuana industry is growing like wildfire, and marijuana stock investors have taken notice. Over the trailing year, more pot stocks than not with a market cap of at least $200 million have doubled in value, if not moved even higher.

It's not hard to understand why investors are so excited about the prospects for legal cannabis. Cannabis research firm ArcView estimates that North American legal sales totaled $6.9 billion in 2016, up 34% from the previous year. But it's the $46.4 billion in black-market sales throughout North America last year that has investors excited. Continued legalization efforts and organic growth within existing states and countries gives investors numerous ways to take advantage of the green rush.

An outdoor cannabis grow farm.

Image source: Getty Images.

Canadian pot stocks come into focus

Perhaps no group of marijuana stocks offers a quicker pace of growth in the near term than Canadian medical cannabis companies. Canada legalized medical cannabis back in 2001, and its parliament is currently debating legislation introduced by Prime Minister Justin Trudeau that would legalize recreational pot for adult use by July 1, 2018. Canada's government estimates this could lead to $5 billion to $7 billion in additional revenue each year, which is a main reason why Canadian-based weed stocks have been scrambling to boost capacity.

One such name that's at the forefront of this trend is Aurora Cannabis (NASDAQOTH:ACBFF). Aurora, a provider of dried cannabis and cannabis oils, is in the midst of developing the Aurora Sky project, an 800,000-square-foot facility that it claims will be the most technologically advanced and automated in the world when complete.

Earlier this week, Aurora Cannabis reported its fiscal fourth-quarter results and updated investors regarding the progress at Aurora Sky. On most accounts, Aurora Cannabis' quarter and full year were impressive. However, there's one eyesore within its report that investors need to be aware of.

First, let's take a look at everything that Aurora Cannabis did right.

Cannabis buds in a jar tipped over onto a pile of cash.

Image source: Getty Images.

Aurora Cannabis dazzles with its Q4 and full-year results

For the full year, Aurora Cannabis wound up reporting $14.6 million in sales, which was a clean 1,155% higher than what it reported last year. This growth is completely attributable to a huge increase in the number of registered medical patients in its network. It ended the year with 16,400 active registered patients compared to just 4,500 in the year-ago period. This growth jibes with commentary from Health Canada in May that the number of registered medical patients was increasing by about 10% a month

Aurora Cannabis also delivered key margin improvements, with the average selling price per gram rising by 12.2% from the sequential third quarter and 22.3% from the prior-year period. Given the rapid increase in medical-eligible patients in Canada, it would appear demand is fueling these price increases. At the same time, cash cost of sales per gram of dried cannabis declined by nearly 10% from the sequential third quarter. Higher pot prices and lower costs are generally a good combination.

Of course, Aurora Cannabis is throwing everything and the kitchen sink at Aurora Sky right now, and rightly so. If the Canadian government moves forward with recreational legalization, some pundits have suggested that it could snare around 10% of the country's market share with Aurora Sky's added production capacity.

The project remains on track and on budget, with the first planting in finished bays expected before the end of 2017. The first crops are expected to be harvested in early 2018, with full project completion by the middle of next year. Once fully operational, Aurora Sky could deliver 100,000 kilograms of cannabis annually.

A frustrated stock trader grasping his head in front of computer screens.

Image source: Getty Images.

Danger, Will Robinson!

In terms of liquidity, Aurora Cannabis is no slouch, either. It ended the fiscal year with $129.3 million in cash and cash equivalents, which should be more than enough to fund its Aurora Sky project and varied investment opportunities over the next year. This capital should come in especially handy if Canada does indeed move forward with plans to legalize adult-use weed.

However, there's an eye-popping statistic that investors might easily overlook if they don't carefully read Aurora Cannabis' fourth-quarter and full-year report. Over the past fiscal year, the company generated $178.2 million from financing activities. A big portion of these financing activities involved bought-deal financings, which is really common in Canada.

Bought-deal financing is where an underwriter or investment firm agrees to purchase an allotment of shares from an issuer before a preliminary prospectus is filed. While bought-deal financing ensures that all secondary shares to market are sold, it also boosts the outstanding share count and dilutes existing shareholders in much the same way a standard secondary share offering would.

Aurora Cannabis ended last year with 245,423,422 common shares outstanding, at least based on its Canadian-issued full-year report. The new count as of the end of fiscal 2017 was 371,569,751 million shares outstanding.

Further, the number of options to purchase common shares more than doubled year over year, and the company in May completed a $75 million convertible debenture offering, which could allow debtholders to convert their debt to common stock in the future. In other words, Aurora Cannabis is diluting its investors left and right!

This is the danger inherent in Canadian pot stocks like Aurora Cannabis: They're so hell-bent on raising capital to expand that they're decimating shareholder value in the process.

If you're considering an investment in marijuana stocks, you should understand that your fate will probably be similar, considering that marijuana isn't necessarily a viable business model as of yet. Until we gain clarity on what the Canadian government plans to do about recreational pot, it's probably smart for investors to remain safely on the sidelines.

Sean Williams 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.