Shares of cannabis stocks large and small were beaten down after soft second-quarter results disappointed investors expecting soaring sales of recreational cannabis in Canada that haven't materialized. As a result, some of the world's largest cannabis companies have stock prices miles below their peaks. 

Has the market already pulled these cannabis kings down as far as it can, or could they sink even lower? Here's what to look for from each one of these formerly high-flying marijuana stocks. 

Company (Symbol) Gain (Loss) Since 52-Week High Market Cap
Tilray (NASDAQ:TLRY) (89%) $3.1 billion
Cronos Group (NASDAQ:CRON) (52%) $4.2 billion

Data source: Yahoo! Finance.

1. Tilray: Two more years

During the second quarter of 2019, total revenue bounded 371% higher than the previous year to $45.9 million. Unfortunately for Tilray, that wasn't the only line item that rose. Over the same period, Tilray reported that the cost of goods sold soared 504% higher.

During the three months ended June, Tilray's gross margin fell from 43% of revenue in 2018 to just 27% this year. To Tilray's credit, operating expenses rose more slowly than top-line revenue but the company still ended up posting a $32.9 million loss.

Another reason investors are nervous about Tilray is its ownership structure. Privateer Holdings is still holding 75 million shares of Tilray, which works out to around 77% of the total shares outstanding. Privateer will fold itself into Tilray and retire its unlocked shares after creating new shares that include a two-year lockup.

It should probably be taken as a sign of confidence that Privateer Holdings hasn't sold a significant portion of its Tilray shares and is willing to lock up its investment for another two years. However, investors need to think much further ahead than that.

The market's expectations are still high, and there isn't much of a cash cushion to fall back on if the company doesn't start posting positive cash flows in the next several quarters. Tilray finished June with $221 million in cash and securities after losing $33 million during the second quarter.

With a market cap that's still above $3 billion and a negative tangible book value, this stock is a long way from any bottom. In fact, the stock's still trading at a sky-high 16.6 times forward revenue expectations, and more trouble meeting those expectations could still result in heavy losses.

Pot leaf on a one hundred dollar bill.

Image source: Getty Images.

2. Cronos Group: Transitioning footprint

During the second quarter, Cronos Group recorded a gross profit that was 6% lower than during the previous year period. With just CA$5.9 million to work with, operations lost CA$20.4 million.

Even though the company's not making ends meet at home, this licensed Canadian producer has convinced investors that building a global supply chain will finally drive profits. To make it happen, Cronos Group has invested heavily in operations around the globe without much to show for it yet. Compared with the previous year period, international sales fell 8% to just CA$418,000 in the second quarter.  

While operations haven't been impressive, Cronos has been busy. The Canadian cannabis producer opened a new research and development center in Israel, and more recently the company spent CA$300 million to enter the U.S. CBD market in a big way. Cronos Group now owns the popular Lord Jones brand, which sells CBD-loaded lotions that reduce surface-level pains, according to numerous anecdotal reports. 

Thanks to Altria's (NYSE:MO) recent cash infusion, Cronos was able to pay mostly cash for its new U.S. CBD operation, which could contribute significantly to the company's top line before the end of the year. Cronos Group's also taking a bold step by breeding microbes genetically altered to excrete specific cannabinoids. Unique, patentable cannabinoids with clear health implications could be worth billions in U.S. sales, but the FDA will need to see evidence that can only be provided by years of animal and human testing.

It's going to take a lot more time and investment before Cronos Group can market any proprietary cannabinoids as medicine, but the company could cement the Lord Jones brand's position in an increasingly crowded market for CBD-infused products. If Cronos is serious about differentiating itself as a purveyor of top-quality CBD products, the company will hire a drug development team to produce some evidence that proves its products work. Although you can't market a drug to treat conditions that it hasn't been specifically approved for, the FDA can't stop Cronos Group from touting impressive clinical trial data.

Doctor holding medical cannabis.

Image source: Getty Images.

Most likely to recover?

At recent prices, Cronos Group's market cap is larger than Tilray's, but Cronos is sitting on a lot more cash. Thanks to a CA$2.4 billion cash infusion courtesy of Altria, Cronos finished June with CA$2.3 billion in cash and securities.

Before the end of the year, Health Canada should begin allowing the sale of vaporizer cartridges and edibles that could drive up sales. Unfortunately, the new form factors will probably end up cannibalizing enough dry flower and oil capsule sales to make their rollout insignificant in terms of total revenue.

If asked to pick the stock most likely to bounce back, it would be Cronos, but that's only because it has a lot more cash that might give it enough time to figure out how to make money selling marijuana.