In many ways, the legal marijuana industry is viewed as a once-in-a-generation, or perhaps once-in-a-lifetime, growth opportunity. With tens of billions of dollars in sales regularly occurring in the black market, gradually moving these transactions over to legal channels could produce substantial ripples within the cannabis community and throughout ancillary industries.

Just how big could the pot industry grow? While a handful of Wall Street firms have called for a fourfold to sixfold increase in global sales over the next decade, Bank of America analyst Christopher Carey believes the industry could deliver $166 billion in annual peak sales at some point in the distant future. Additionally, Carey foresees cannabis disrupting industries that today account for $2.6 trillion in global revenue.

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All major marijuana stocks are now in a bear market

But all of these pie-in-the-sky figures mean absolutely nothing at the moment, with every single popular pot stock now in bear market territory (i.e., down at least 20% from their all-time highs). Here's a brief rundown of how the most popular Canadian marijuana stocks have performed since hitting their all-time highs, courtesy of YCharts (through June 3):

  • HEXO (HEXO): Down 25%
  • Canopy Growth (CGC -7.62%): Down 32%
  • Aurora Cannabis (ACB -5.25%): Down 39%
  • Cronos Group (CRON 1.51%): Down 42%
  • Aphria (APHA): Down 62%
  • Tilray (TLRY): Down 84%

Among the six most popular pot stocks, only HEXO and Cronos Group have ascended to new highs at some point in 2019, with the other four hitting their highs in either September or October of 2018.

What's caused this complete washout in marijuana stocks, you ask? I'd offer five ideas.

A Canadian flag with a cannabis leaf at the center, and the words Sold Out stamped across the leaf and flag.

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1. Canadian supply chain issues

The most logical explanation for the cannabis industry's woes has been a plethora of supply chain issues throughout Canada. Most provinces have been unable to meet demand on the recreational side of the equation, and are unlikely to be able to do so for another 12 to 24 months.

A lot of finger-pointing has gone to regulatory agency Health Canada, which was contending with a cultivation, processing, and sales licensing backlog of more than 800 applications as of January 2019. It can take months to review cultivation applications, and was taking nearly a year to approve sales applications, as of May 2018.

However, Health Canada did recently announce that it would be changing the cultivation application procedure to whittle down its immense backlog. Moving forward, applicants will need to have their grow facilities complete before submitting their applications. This should favor more established and deep-pocketed cannabis growers, like the companies mentioned above.

A shortage of compliant packaging has also played a role in keeping finished product off dispensary store shelves.

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2. Disappointing operating results

Secondly, you can blame the poor performance of these popular pot stocks on their operating results. As you'd expect, supply chain issues have reduced sales estimates and widened operating-loss outlooks for a majority of Canadian growers. Here's a quick rundown of what these six popular pot stocks delivered, from an operating loss perspective in Canadian dollars (CA$), in their most recent quarter:

With only a "minimal" loss of CA$6.9 million, perhaps it's no surprise that HEXO is the best of the worst of late. On the other hand, the two largest pot stocks in the world by market cap (Canopy and Aurora), and Aphria, which wound up taking a hefty writedown, all reported substantial operating losses. Since earnings reports actually matter now, this isn't the way to get on Wall Street's good side.

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3. Persistent share-based dilution

Roll your eyes all you want, but share-based dilution has been, and will continue to be, a persistent problem for the most popular cannabis stocks.

Even though Canadian pot stocks now have access to nondilutive forms of financing, most still prefer to issue their common stock or offer convertible debentures, which most noteholders convert into stock, as a means of raising capital. The end result being a ballooned outstanding share count that destroys shareholder value and will make it that much more difficult for cannabis stocks to earn a meaningful profit per share in the future.

For instance, Aurora Cannabis has seen its share count balloon from 16 million to 1.01 billion in less than five years. But the king of dilution isn't alone. Canopy Growth's share count has shot up from around 30 million at the end of 2014 to 334.7 million, as of the end calendar year 2018. Aphria had close to 58 million shares outstanding by the end of 2015, but now has closer to 250 million. And the story is the same with HEXO and Cronos, both of which have seen their share counts soar in recent years.

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4. Shareholder trust issues

This bear market push by marijuana stocks can also be blamed on individual issues.

Aphria, for example, has completely lost the trust of its shareholders following a short-seller report in December that alleged it overpaid for Latin American assets. Although an independent committee found that the price paid for these assets was within an acceptable range, the review nevertheless turned up conflicts of interest in the deal that led to a handful of execs, including longtime CEO Vic Neufeld, stepping down. More recently, Aphria wrote down CA$50 million of the value of its Latin American assets, adding more uncertainty to its future.

Tilray is another example where trust issues have come into play. Even though it hasn't contended with short-seller attacks like rival Aphria, CEO Brendan Kennedy did announce in March that his company was completely shifting its strategy from focusing on Canada to moving into the U.S. (via hemp) and into Europe. These external markets do offer plenty of promise, but it's an odd move for Tilray given the strong medical branding it possesses in Canada. Now, seemingly like a rudderless ship, investors are confused as to where Tilray goes next.

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5. The natural evolution of next-big-thing investments

Last, but not least, let's not overlook the fact that every next-big-thing investment over the past quarter-century has gone through a parabolic rally period and a subsequent bubble-bursting period.

It's become an almost certainty that, when a new technology or product hits the market with multibillion-dollar potential, investors bid associated stocks through the roof. Rarely, if ever, though, can companies in nascent industries meet the lofty early-stage growth projections set by Wall Street and investors. Whether it's internet stocks, business-to-business commerce, genomics, 3D printing, blockchain companies, or any such subset of hot investment ideas, there's always a period of maturation needed to sort out the haves from the have-nots.

Marijuana stock investors need to understand that choppiness and even bear markets are to be expected as the pot industry matures.