Across the board, this has been a great year for marijuana stocks. The ETFMG Alternative Harvest (MJ -1.34%) portfolio contains companies with a diverse range of business models focused on the cannabis industry. Shares of this exchange-traded fund (ETF) have soared 36% in 2019.

Not every stock in the Alternative Harvest portfolio is doing so great, though, especially these three. 

Company (Symbol) Year-to-Date Gain (Loss) Main Focus  Market Cap
Auxly Cannabis (CBWTF) (7.2%) Canadian edibles $353 million
KushCo Holdings (KSHB) 2.3% Packaging $484 million
MedMen Enterprises (MMNFF) 7.1% U.S. retail $289 million

Data source: Yahoo! Finance.

Here's a look at why they've been lagging behind their industry, and what needs to happen if they're going to bounce back. 

1. Auxly Cannabis: A long wait

This vertically integrated cannabis company has acquired a diverse range of cannabis facilities and businesses, but the revenue side of this equation was less than zero last year. That's because Auxly doesn't sell anything Canadians can buy yet. In 2018, the only revenue Auxly recorded was related to research services for customers conducting clinical trials. This segment generated CA$747,000 in top-line revenue, but Auxly also spent CA$1.1 million fulfilling those services. 

Auxly investors will just have to wait until Health Canada writes the rules for cannabis edibles and other derivatives products and allows their sale. That should occur before the end of October, and in the meantime, Auxly will begin selling raw cannabis into the dry cannabis market.

Auxly has entered into agreements with a handful of Canada's smaller licensed producers that generally involve an equity stake, and rights to purchase the cannabis they produce at a discount. The company also makes long-term investments in other cannabis businesses intended to help the company integrate vertically, but this lean structure isn't working out so well.

In 2018, the fair value of just four of Auxly's long-term investments rose slightly, while the other 12 fell. With such a lousy track record and nothing to sell but dry flower until the last half of the year, Auxly stock probably isn't going to bounce back in the foreseeable future.

Cannabis seedlings on ascending stacks of quarters.

Image source: Getty Images.

2. KushCo Holdings: Shrinking margin

States with heavily regulated marijuana programs, such as California and Florida, have stringent packaging rules, and KushCo is the go-to source for meeting the demands that come with selling licensed cannabis. This cannabis packaging-and-accessory company isn't as exposed to fluctuating prices as the businesses it serves, but the stock hasn't performed well this year, for a couple of reasons.

First, KushCo completed a direct offering in January that boosted its share count by around 9.7 million. The company's market cap has gained 12.3% in 2019, but all those extra shares allowed the price to rise just 2.3% this year.

KushCo's stock price has also been under pressure thanks to a shrinking gross margin. During the company's fiscal second quarter, which ended on Feb. 28, gross profit fell to just 12.9% of revenue, compared with 28.1% a year earlier.

Inventory write-offs that probably won't repeat played a big role in reducing KushCo's gross margin. The company has also expanded its product line to include increasingly popular vaporizer cartridges, plus the solvents and gases to create stuff that goes in those cartridges. This changing product mix, combined with some discounting to maintain market share, has also squeezed margin.

Luckily, sales are growing through the roof. During the three months ended February, net revenue rose 39% from the previous three-month period, and 240% compared with the same period a year earlier. Thanks to a rapidly growing customer base, KushCo has a chance to narrow the gap between sales and expenses and maybe even report a profit in the quarters ahead. That would almost certainly push this stock through the roof again. 

Dry Marijuana flower and a stack of cash money.

Image source: Getty Images.

3. MedMen Enterprises: A boutique retail experience 

This company's become famous for operating a chain of premium retail locations that cater to cannabis users who don't mind paying extra for a boutique experience. This business model doesn't work everywhere, but it's doing well in some wealthy areas and tourist destinations.

Over the past year, this company's market cap has risen 197%, but the stock has fallen 10.7% over the same time frame. The stock has underperformed recently because it appears to be headed for another round of dilutive financing. 

There are only so many places where being the best-looking store around gets more customers to walk through the door than a good bargain. The same is true for marijuana dispensaries, and it looks as if MedMen, in its haste to gain market share at any cost, has staffed more than a few great-looking locations that aren't very busy, or open. 

During the 13 weeks ended Dec. 29, MedMen reported sales, general, and administrative expenses that soared 589% on year to $74.3 million. The company's established retail outlets are doing well enough to drive total revenue forward, but operations are bleeding money. Operations generated $29.9 million in revenue during the period but still lost $61.8 million.

Cannabis and a vape pen.

Image source: Getty Images.

MedMen recently announced preliminary revenue figures for the quarter ended March 30, coming in 22% higher than the previous quarter. We don't know how much the company lost yet, but we do know that just 32 of 82 retail licenses in its portfolio are connected to operational stores.

To produce the same return they were expecting, shareholders who bought MedMen a year ago need the company to earn almost 3 times as much as they were expecting -- and it's going to get worse. The company finished December with just $56.3 in working capital, after recording heavy losses.

Most likely to soar again

MedMen has bitten off a lot more than it can chew, and we still don't know if Auxly can market a product anyone wants to buy. KushCo isn't a safe stock, but it's clearly the one most likely to put up the big gains marijuana investors have gotten used to.