In case you haven't noticed, cannabis is sort of a big thing on Wall Street. Between the beginning of 2016 and the first quarter of 2019, pot stocks were practically unstoppable. Many of the biggest names in the industry saw their share prices rise by well over 1,000% in just a shade over three years.

But the tide has decisively turned over the past five-plus months. Since the end of the first quarter, the Horizons Marijuana Life Sciences ETF, the first exchange-traded fund focused on cannabis, has declined by nearly 33% through Sept. 17, inclusive of dividends paid.

A clear jar packed with cannabis buds that's lying atop a small pile of cash.

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With few exceptions, marijuana stock profit estimates are plunging

Marijuana stocks throughout North America have been hit by a barrage of supply concerns, a persistent black-market presence, and high tax rates that have allowed illicitly produced weed to easily undercut legal-channel product on price. Worse yet, none of these issues is going to be resolved overnight, leading to the growing likelihood that weakness in pot stocks could continue for many quarters to come. As a result, we've witnessed forward-year consensus sale and profit projections tumbling across the board among marijuana stocks.

There have, of course, been exceptions to the rule. For example, cannabis real estate investment trust (REIT) Innovative Industrial Properties (NYSE:IIPR) has seen its per-share profit projections tick higher in recent months, which is mostly the result of the company acquiring new cannabis rental properties. REITs are typically a moneymaking model given their highly predictable cash flow and cost structure, with this predictability translating over to the cannabis space and Innovative Industrial. As the company continues to add new assets, its net operating income should increase.

We've also seen bottom-line projections for cannabinoid drug developer GW Pharmaceuticals (NASDAQ:GWPH) improve significantly over the past three months. GW Pharmaceuticals may not want to be called a cannabis stock, but its association with the cannabinoids of the cannabis plant has made its investors a pretty penny. The launch of Epidiolex, a cannabidiol-based oral solution designed to treat two rare types of childhood-onset epilepsy, has gone far better than anyone expected, with Wall Street analysts now believing GW Pharmaceuticals could be profitable on a recurring basis by next year.

A cannabis leaf laid within the outline of the Canadian flag's maple leaf, with rolled joints and a cannabis bud to the left of the flag.

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The only Canadian cannabis stock with a budding profit outlook

But of the few marijuana stocks with rising earnings-per-share (EPS) estimates, practically all are located in the United States or United Kingdom. Comparatively, EPS estimates for pot stocks in Canada, the world's only recreationally legalized adult-use market in the world, are plunging... with one exception: Aphria (NYSE:APHA).

According to a quick screen of Canadian marijuana stocks, Wall Street's consensus forward-year profit projection for Aphria in fiscal 2021 has increased from CA$0.20 (that's 20 Canadian cents) per share three months ago to CA$0.32 per share as of today. The bulk of this increase occurred a little over a month ago, shortly after Aphria reported its fiscal fourth-quarter results for 2019 and delivered a surprise profit.

On one hand, Wall Street was impressed with Aphria's sudden surge in recreational sales, especially considering the supply issues that have impacted Canada. Adult-use revenue rose 158% from the sequential quarter to CA$18.5 million, and wound up representing the bulk of cannabis sold during the fourth quarter -- total marijuana revenue was CA$28.6 million. The downside is that recreational users are typically a lower-margin consumer than medical pot patients. On the flip side, the market for adult-use weed trounces that of medical marijuana.

However, the real star might have been subsidiary CC Pharma, which Aphria officially acquired this past January. CC Pharma is a distributor of pharmaceutical products (including medical marijuana) to more than 13,000 pharmacies in Germany and throughout Europe. Although pharmaceutical product distribution is typically a high-sales, low-margin type business, it's going to help provide Aphria with some semblance of predictable cash flow, even if it acts as a drag on overall company margins. In the most recent quarter, distribution revenue hit CA$99.2 million. In fiscal 2020, it's possible that distribution sales could account for around half of Aphria's sales. 

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Three reasons to be cautious on Aphria, despite its improved outlook

Everything would seem to be coming together for Aphria, which at 26 times next year's profit projections makes it one of the cheapest Canadian pot stocks. But before aggressively clicking that buy button, here are three reasons you might want to rein in your expectations a bit.

First, supply issues in Canada aren't going away anytime soon. Yes, regulatory agency Health Canada has implemented fixes for its enormous cultivation and sales license backlog that should help it review and approve new applications. But these fixes are going to take multiple quarters to really be felt. Meanwhile, some growers (ahem, Aphria) have been waiting an eternity for the cultivation green light on core facilities. Aphria Diamond, a joint-venture grow site capable of 140,000 kilos of peak annual output -- this represents about 55% of Aphria's peak production -- has been on deck waiting for approval for more than a year.

Second, despite having a solid international presence, much the result of Aphria's Nuuvera acquisition in March 2018, it's going to be quite some time before these overseas markets begin to pay dividends. CC Pharma aside, the concern is that Canadian demand needs to be satisfied first before growers can really begin exporting to foreign markets. Given the aforementioned supply issues, it might be years before we really see international weed sales take off.

Third, but arguably the biggest problem of all, Aphria has built-in trust issues. Aphria shot itself in the foot when it was disclosed that executives in the company held equity positions in Nuuvera just a day prior to the closing of the deal. While it's not unheard of for executives to own stock in a company being acquired, Wall Street and investors would want to know about it well in advance of the deal closing.

Similarly, in December, Aphria was hit with allegations from short-sellers Quintessential Capital Management and Hindenburg Research that it grossly overpaid for its Latin American assets. An independent committee wound up refuting these claims, but did find conflicts of interest at the executive level, leading to some turnover that included longtime CEO Vic Neufeld. Just months later, Aphria would wind up writing down CA$50 million in value on its Latin American assets.

While most issues are fixable, investor trust is very difficult to rebuild.