What happened

Since Canada officially ended prohibition on adult-use recreational marijuana on Oct. 17, the country's top pot companies have seen their stocks absolutely implode. And this dramatic downturn across the industry is continuing today.

Shares of Canopy Growth Corporation (TSX:WEED) (NASDAQ:CGC), Cronos Group (NASDAQ:CRON), and Tilray (NASDAQ:TLRY), for instance, are all down by double-digits, as of 1:17 p.m. EDT today. Turning to the details, Canopy's share price fell by as much as 11.3%; Cronos Group's stock slid by a hefty 10.7%; and Tilray's shares dipped by a sizable 12%, during the first half of today's trading session.

A red trend line sloping down and to the right.

Image source: Getty Images.

So what

This industrywide sell off is arguably overdue in many respects. Prior to this pullback, Canopy, Cronos, and Tilray were all grossly overvalued from a forward-looking (2019) price-to-sales ratio standpoint. Tilray, for example, was trading at a forward-looking price-to-sales ratio in excess of 90 only a few weeks ago. That kind of sky-high valuation is hard to justify for an industry that could be several years away from seeing some of its most lucrative markets open up.

Now what

Unfortunately, Cronos and Tilray probably have a long way to go before their shares will find a bottom. Both companies lack the kind of financial firewall necessary to readily deal with the upcoming supply glut in the Canadian recreational market.

Canopy, on the other hand, is starting to approach bargain territory here. By virtue of its partnership with Constellation Brands (NYSE:STZ), Canopy has a monstrous cash position that should set it up for long-term growth -- despite the forthcoming headwinds in the Canadian pot market.

Now, Canopy's stock probably isn't suited for conservative investors due to the speculative nature of the nascent cannabis space as a whole. But if its shares continue to move lower, risk-tolerant individuals might want to consider buying some shares of this well-funded titan of the pot industry.

Constellation, after all, has the right to own over half of this company via their strategy partnership and Canopy's top tier production capacity should prove to be a tough economic moat to overcome for competitors like Cronos and Tilray.

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.