The marijuana industry has been on fire of late, and marijuana stock investors have certainly taken notice.

Following nine decades of recreational pot prohibition, Canada officially legalized adult-use weed and allowed it to be sold in licensed brick-and-mortar or online stores as of Oct. 17, 2018. This was soon followed by a handful of legalizations at the state level in the U.S., and the passage of the Farm Bill in December, which legalized hemp and hemp-derived cannabidiol products. Throughout North America, the prospects for the pot industry are budding.

The big question is: Just how big could the cannabis industry grow?

A cannabis leaf laid atop a hundred dollar bill, with Ben Franklin's eyes poking out between the leaves.

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According to a recent report from Arcview Market Research and BDS Analytics, global sales are expected to soar from less than $10 billion in 2017 to more than $31 billion by 2022. Investment bank Cowen Group, which has easily been the biggest cheerleader for the industry on Wall Street, is projecting $75 billion in sales by 2030. And Jefferies, in a recent research note, called for $50 billion in global annual sales by 2029, with the industry having an opportunity to grow as large as $130 billion -- which could make the cannabis space twice the size of the soda industry, in terms of yearly sales.

These analyst projections and research notes are big reasons why valuations for pot stocks remain so high. Between rapid estimated sales growth, a handful of brand-name deals and partnerships, and Wall Street coverage, investors might be of the opinion that nothing could go wrong.

But Wall Street analysts haven't always been right about the nascent cannabis industry. In fact, they've been wrong a lot in the early going.

Wall Street analysts are fallible

Back on Oct. 17, Scotiabank analyst Oliver Rowe initiated coverage on Aphria (APHA) -- which at the time was still listed on the over-the-counter exchange -- with a price target of $25 Canadian (close to $19 U.S.) and an outperform rating. Rowe, in his research note, proclaimed Aphria to be the best way to play the burgeoning cannabis space. He noted that Aphria was perfecting the economics behind large-scale production and should be able to generate substantial margins in the recreational and medical segments. Aphria's stock closed at nearly $15 a share in the U.S. that day. 

A frustrated stock professional grabbing the top of his head while looking at losses on his computer screen.

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What's happened since Rowe's note? At one point in December, less than two months after his research note was published, Aphria's stock plummeted to a closing low of $4.51. A report from short-side firm Quintessential Capital Management and forensic analysis company Hindenburg Research alleged that Aphria grossly overpaid for three Latin American assets, and that related parties were involved in these deals. Although an internal investigation would later show the price paid for these Latin American assets was within reason, longtime CEO Vic Neufeld, along with two other board members, would announce their exit. Not to pick on Oliver Rowe, but his top choice hasn't panned out.

Even Wall Street's most vocal weed analyst has struck out. Vivien Azer, the covering analyst at Cowen who projected $75 billion in annual sales in just over a decade, missed the mark terribly on Tilray (TLRY). After maintaining an outperform rating and $62 price target on Tilray, Azer raised her target price to $172 on Oct. 9. By this point, Tilray had already exploded to an intraday high of $300 per share just weeks before. Since her call on Tilray, the medical-cannabis-focused company has lost close to 40% of its value and is nearly $100 away from her target. Though Tilray hasn't faced the same shareholder trust issues that Aphria has contended with, its ongoing losses haven't helped its already lofty valuation. 

Check out the latest earnings call transcripts for the companies we cover.

Ignore the white noise

With Wall Street analysts proving fallible, this is a wake-up call for investors that little is set in stone when it comes to the cannabis industry.

A businesswoman smirking as she attentively reads the financial section of the newspaper.

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As an example, as recently as a few weeks ago, Wall Street firms had to significantly reduce Canopy Growth's second-quarter sales estimates in lieu of the ongoing supply shortage in Canada. Though analysts may have foreseen minor supply constraints in some provinces, none correctly forecast the magnitude of supply issues that the country has contended with. Taking into account regulatory red tape, the expansion of new consumption options by this coming fall, and industry consolidation, there simply aren't many concrete statements that can be made about the cannabis industry, other than it's been incredibly unpredictable in the early going.

This is also a great time to point out that analyst coverage rarely has any significant impact on a company's share price over the long run. More often than not, analyst ratings and price targets are merely white noise that can be ignored or marginalized as very short-term events.

If there's a lesson here, it's that you need to form your own opinion of the cannabis industry and be able to adjust that opinion as the industry matures.