Following a rip-roaring start to the new year, the canna-buzz turned to a canna-bust during the second quarter.

During the first three months of 2019, the fast-growing marijuana industry was virtually unstoppable. More than a dozen popular pot stocks gained in excess of 70%, and the Horizons Marijuana Life Sciences ETF, which holds more than four dozen cannabis stocks of varying weightings, surged better than 50%.

However, the second quarter was a different story, with the Horizons Marijuana Life Sciences ETF shedding 13% of its value and 25 marijuana stocks losing at least 20% of their value, when rounded to the nearest whole number.

A smoldering cannabis bud that's partially turned black from the flame.

Image source: Getty Images.

These marijuana stocks went up in smoke in the second quarter

Why such a poor performance after pot stocks demonstrated so much promise at the beginning of the year? As you'll see, it was often a combination of supply issues in Canada, as well as the fact that earnings results actually matter now that recreational weed is legal in Canada, and in a growing number of U.S. states.

Listed in descending order, here were the cannabis industry's worst of the worst in the second quarter:

  • Insys Therapeutics: Down 94%
  • TILT Holdings: Down 55%
  • MariMed: Down 42%
  • VIVO Cannabis: Down 42%
  • Zenabis Global (ZBISF): Down 40%
  • iAnthus Capital Holdings: Down 39%
  • Emerald Health Therapeutics: Down 39%
  • Green Growth Brands: Down 38%
  • Harvest Health & Recreation (HRVSF): Down 36%
  • CannTrust Holdings (CNTTQ): Down 35%
  • The Green Organic Dutchman: Down 31%
  • CV Sciences: Down 31%
  • FSD Pharma: Down 30%
  • Tilray: Down 29%
  • Aleafia Health (ALEAF 10.22%): Down 29%
  • The Supreme Cannabis Company: Down 27%
  • Charlotte's Web Holdings: Down 27%
  • Liberty Health Sciences: Down 27%
  • Green Thumb Industries: Down 26%
  • Aphria (APHA): Down 25%
  • Origin House: Down 23%
  • Curaleaf Holdings: Down 22%
  • Elixinol Global: Down 21%
  • Acreage Holdings (ACRGF): Down 20%
  • HEXO (HEXO): Down 20%
A Canadian flag with a cannabis leaf in place of the maple leaf, and the words, Sold Out, stamped across the flag.

Image source: Getty Images.

A number of major Canadian growers were clobbered

Although you won't find the most popular pot stocks on this list -- Aurora Cannabis or Canopy Growth -- quite a few major Canadian growers were clobbered in the latest quarter. Tilray, Zenabis Global, Aleafia Health, CannTrust, Aphria, and Emerald Health are all likely to individually yield more than 100,000 kilos per year at peak production, yet were crushed in the second quarter by Wall Street.

As noted, part of the problem has to do with supply side issues in Canada. Regulatory agency Health Canada has been contending with a monstrous backlog of licensing applications, which has lent to long wait times for marijuana companies looking to grow, process, and sell their cannabis. Aphria, for example, has been waiting for more than a year to get its joint venture Aphria Diamond project licensed for cultivation. When fully operational, Aphria Diamond will account for 140,000 kilos of the company's projected 255,000 kilos of annual output. This wait has been seriously constraining near-term operating results, as well as contracting pot stock valuations.

Another issue is that there are a number of lesser-known major growers that Wall Street is unsure can thrive. Names like Zenabis Global and Aleafia Health offer plenty of annual output based on their funded capacity, but they lack brand-name partners or major supply deals, and have anemic share prices that pretty much ensure they have zero shot of uplisting at the moment. Zenabis and Aleafia are also spending quite a bit of money on their build-outs, which may result in future capital raises that prove dilutive to existing shareholders.

A businessman in a suit giving the thumbs-down sign.

Image source: Getty Images.

Big acquisitions were given the thumbs-down by investors

Meanwhile, U.S.-focused marijuana stocks have been hammered by a persistent black-market presence precipitated by high tax rates in states like California and Washington. Some locales of California can, with state, local, and cannabis taxes all grouped together, hit a combined rate of 45% for legal weed purchases, which is more than enough to reduce legal-channel revenue and fuel illicit production.

But the bigger problem of late might just be that Wall Street isn't thrilled with the premiums being paid for, and dilution resulting from, major acquisitions.

Harvest Health & Recreation, which looks to be the pro forma leader in aggregate licenses held for retail stores, grow farms, and processing sites, is in the midst of an $850 million all-stock deal to buy privately held Verano Holdings, as well as a number of other smaller companies. With Harvest having just a handful of retail stores open now but licenses for 142 dispensaries if every acquisition were to close, investors are getting a real taste for the expense, and share-based dilution, that could await this aggressive expansion strategy.

Even Acreage Holdings, which agreed to be acquired by Canopy Growth for $3.4 billion in a contingent-rights deal, shed a significant amount of its value during the second quarter. Despite trading substantially below the premium offered by Canopy, Acreage Holdings' deal is contingent on the U.S. legalizing marijuana at the federal level, which may still be many years away, if it even happens.

Suffice it to say, promises are no longer moving marijuana stocks, as you'll see in the next point.

A person holding a magnifying glass over a company's balance sheet.

Image source: Getty Images.

Earnings disappointment was dealt with harshly

We also witnessed poor earnings results being dealt with harshly during the recently ended second quarter.

CannTrust, which many on Wall Street had projected would be pushing near profitability by now, announced in very late March that it'd be acquiring up to 200 acres of land for outdoor cannabis-growing purposes, and that this added investment, along with its late start to the phase 3 expansion at Niagara, would result in higher near-term expenses and wider losses. Even though CannTrust presents an intriguing outlook as a top five producer that's focused on derivatives (i.e., non-dried flower cannabis products), Wall Street is looking for demonstrable evidence that organic sales are increasing and losses are narrowing. Right now, CannTrust's bottom line isn't heading in the right direction.

The same could be said for popular pot stock HEXO, which reported a wider third-quarter loss, sans fair-value adjustments on biological assets, and a 3% sequential quarterly decline in sales that was primarily blamed on supply issues throughout Canada. Even with HEXO landing a number of major deals and focusing on high-margin derivatives, Wall Street has taken more of a "show me" approach.

Legal marijuana may offer plenty of potential, but investors should be prepared for plenty of volatility moving forward with this still-young industry looking for its footing.