What happened

Shares of Cronos Group (CRON -1.66%), a Canadian cannabis producer, are sliding after several analysts issued downgrades in response to yesterday's earnings call. Investors worried that Canada's government-run cannabis program isn't going anywhere fast have driven the stock 12.5% lower this morning, and it has lost 9.1% as of 2:26 p.m. EDT on Wednesday.

So what

Several analysts, including Canaccord's Matt Bromley, downgraded Cronos Group after the company reported uninspiring results during the last three months of 2018. Compared to its peers, Cronos really didn't do too badly. Unfortunately, the competition set a pretty low bar.

Canadian maple leaf surrounded by cannabis.

Image source: Getty Images.

Cronos was the first licensed cannabis producer to list its shares on a major U.S. stock exchange, but now it's the smallest by sales. Revenue rose 49% from the previous quarter to just 5.6 million Canadian dollars.

That wasn't nearly enough to cover expenses, and operations lost CA$21.5 million, an unacceptable 137% of revenue recorded during the fourth quarter.

Check out the latest earnings call transcript for Cronos Group.

Now what

Statistics Canada reported total sales of licensed cannabis in January were lower than a month earlier. If February's sales figures aren't a lot better than January's, Cronos Group and its peers could be in a lot of trouble.

International sales aren't significant enough to mention yet, which means Cronos is depending on its domestic market to fund operations through the next few years without asking investors for another handout. That's going to be a problem, because the domestic market reached an annualized CA$1.2 billion in the fourth quarter, and it doesn't seem to be getting much larger. Remember, Cronos needs to share that pie with half a dozen larger licensed producers plus at least a hundred smaller ones.

Somehow, Cronos Group still has a $3.3 billion market cap. Unless another company like Altria or Constellation Brands makes an irrational decision and starts throwing money at Cronos, it won't stay that high much longer.