In a little over two months, the floodgates will open in our neighbor to the north. With the Cannabis Act passing on June 19, and Prime Minister Justin Trudeau giving dispensaries and regulatory agencies approximately four months of lead time to prepare, recreational marijuana will go on sale in Canada on Oct. 17, 2018.

The legalization of adult-use weed by Canada is expected to be a huge moneymaker for the cannabis industry. According to various estimates, somewhere in the neighborhood of $5 billion in added annual sales could be generated, on top of what the industry is already bringing in from domestic medical marijuana sales and exports.

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These pot stocks were literal buzzkills in July

However, the expectation of strong sales growth wasn't enough to keep marijuana stocks from careening lower in July. Out of 25 of the largest and most influential pot stocks, 24 of them headed lower. In fact, 10 of these 25 marijuana stocks ended the month of July lower by a double-digit percentage. Here are a handful of the industry's worst performers, in ascending order.

Emerald Health Therapeutics: Down 19.1%

You know it was a bad month for marijuana stocks when Emerald Health Therapeutics' (NASDAQOTH:EMHTF) 19% tumble only represents the fifth-worst performance.

The biggest issue with Emerald Health in July was potentially the lack of game-changing news. With the exception of receiving a sales license at Pure Sunfarms -- the 1.1-million-square-foot joint venture grow project between Emerald Health and Village Farms International -- which was to be expected, there wasn't anything in July that made this company stand out. 

On the bright side, it does have a path to generate over 100,000 kilograms of annual production between Pure Sunfarms, its Metro Vancouver grow facility, and its recent acquisition of Agro Biotech. The problem is that Emerald Health could trail a number of peers in reaching full capacity, which could result in lost market share and/or few guaranteed long-term supply deals. Add in a lot of shareholder dilution, and we have a pretty good picture of why this stock is underperforming.

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The Green Organic Dutchman: Down 19.8%

As for The Green Organic Dutchman (NASDAQOTH:TGODF), one of the largest pot-based initial public offerings (IPO) in Canada this year, confusion surrounding a proposed spinoff of noncore assets might be to blame for its almost 20% decline in July.

On July 19, TGOD, as The Green Organic Dutchman is also known, announced its intention to unlock shareholder value by packaging together a number of its noncore assets and spinning them off into a separate company. A dividend of a warrant in the new corporation (known as TGOD Acquisitions) will be issued to TGOD shareholders on record as of Sept. 28, 2018, with an official IPO in the fourth quarter. 

But what's not noted by the company is exactly what this spinoff will contain. In other words, it only makes sense to unlock shareholder value if the assets held are being undervalued. But what those assets are remains a mystery. Tack on the potential for dilution via share offerings and warrants, and this spinoff looks less than appetizing to investors.

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Aurora Cannabis: Down 22.9%

Aurora Cannabis (NYSE:ACB), which is perhaps the most beloved of all marijuana stocks by investors, had an awful July and lost nearly 23% of its value.

The big news last month was the completion of its $2.5 billion, all-share acquisition of Ontario-based MedReleaf. After beginning the year with aspirations of producing a little over 100,000 kilograms of cannabis per year, the addition of MedReleaf and its 140,000 kilograms of peak capacity production now puts Aurora Cannabis on target for an industry-leading 570,000 kilograms when fully operational. 

Though you'd think that'd be good news, the problem is that Aurora Cannabis has funded its acquisitions, organic builds, and even partnerships, with bought-deal offerings. Since pot stocks had virtually no access to basic banking services prior to the passage of the Cannabis Act in June, selling stock, convertible debentures, stock options, and/or warrants were their primary means of raising capital. As a result, Aurora is drowning investors with a bloated outstanding share count that may soon hit 1 billion shares. This looks to be the main culprit of its underperformance.

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Auxly Cannabis Group: Down 26.1%

Continuing with the theme of share-based dilution, cannabis streaming company Auxly Cannabis Group (NASDAQOTH:CBWTF) nosedived 26% in July.

Despite a number of news releases last month that related to Auxly's licensed partners, the ongoing issue since January has been the precipitous increase in its outstanding share count as a result of bought-deal offerings. As a streaming company that provides upfront capital to its licensed partners, Auxly has had to turn to common stock sales to raise this capital. As a result, its outstanding share count has soared. In fact, even though Auxly's market cap has increased notably since the beginning of the year, its share price has plunged more than 70%.

The other concern with Auxly is what might happen with its costs. Generally speaking, streaming companies should have robust margins since they're able to purchase product at a well-below-market rate. But this purchasing cost is practically fixed, meaning that any substantial commoditization of dried flower could prove disastrous for the company.

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Zynerba Pharmaceuticals: Down 31.7%

But the worst of the worst for July is reserved for cannabinoid-based drug developer Zynerba Pharmaceuticals (NASDAQ:ZYNE), which shed close to a third of its value.

Not to sound like a broken record or anything, but the reason Zynerba's share price dove so abruptly on July 20 was the announcement that it was offering a little over 4 million shares of common stock at $8 per share. Mind you, the company's share price had closed at $10.42 the previous day. This huge discount, which was intended to raise $32.5 million in gross proceeds, before any fees, demonstrates how little demand there was from investors for these newly issued shares. 

Why no love for Zynerba? It may have a lot to do with disappointing clinical result tied to ZYN001, the company's transdermal cannabinoid-based patch. Zynerba plans to put the capital raised toward its other leading candidate, ZYN002, a cannabinoid gel being examined for patients with Fragile X syndrome and a handful of other ailments. With no guarantee of success, it's no wonder investors are leery of this stock. 

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.