Wall Street dealt with continued volatility on Monday, with the Dow Jones Industrial Average working its way lower even as other parts of the market saw gains. With earnings season hitting a crescendo this week, investors are looking closely at the specific prospects for certain corners of the market, and that's contributing to disparities among the various major benchmarks followed most often by investors. Amid the crosscurrents, marijuana stocks took particularly hard hits, and New Age Beverages (NASDAQ:NBEV), Tilray (NASDAQ:TLRY), and Canopy Growth (NASDAQ:CGC) were among the worst performers on the day. Here's why they did so poorly.

Taking a pause

All three of these stocks have given back some of their gains following the long-awaited legalization of recreational cannabis in the Canadian market last week. In the month leading up to the Oct. 17 start date for legal cannabis sales, New Age Beverages tripled in value, while Tilray had more than doubled since the end of August, and Canopy Growth had seen more modest gains of between 10% and 20%.

Two fingers holding marijuana leaf, with large stand of growing cannabis plants in the background.

Image source: Getty Images.

But since then, the reality of the Canadian cannabis market appears to have put pressure on the stocks. Supply constraints have highlighted the need for further development of production facilities and retail infrastructure before consumers will be able to get all the marijuana products they want, but capacity expansion also raises fears of price declines in the long run. Threading that needle could prove problematic for the industry in general, and that explains the downbeat mood over the past few days.

Some company-specific issues

In addition to overall industry trends having turned negative in the short run, there are also some problems that are specific to these individual companies:

  • New Age Beverages has seen its conference presentation of its cannabidiol-infused beverages come and go, but it's now clear to investors that the process for actually making those products available to consumers could take considerably longer. At a key moment for cannabis companies, the delay is a threat to developing a first-mover competitive advantage, especially as higher-profile beverage companies look more closely at the cannabis market. That explains much of its 16% drop today.
  • Tilray fell nearly 16% as investors continue to weigh the pros and cons of the marijuana producer's limited share float. Tilray has more than 76 million outstanding shares, but only about 10 million of those shares trade, according to Yahoo! Finance. That has set up an environment that encourages short squeezes, but when demand for shares dries up, it can also cause volatile downward moves as well.
  • Canopy Growth lost 11%. Many see Canopy as the giant of the industry, especially given its key partnership with beer and spirits giant Constellation Brands. Yet for investors, the fact that Constellation has the right to take a controlling interest in Canopy with warrants that it can exercise at 50.40 Canadian dollars per share -- roughly $38.50 in U.S. dollars at current exchange rates -- arguably puts a ceiling on how far the stock could climb.

Investors should expect marijuana stocks to remain volatile, with moves in both directions likely. Despite the potential of cannabis to become a much larger consumer market than it has been in the past, that's no guarantee that those who invest in the space right now will eventually enjoy big gains from these three top marijuana stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.