Marijuana stocks kicked off 2019 on a strong note, but most of the industry's top names have been in free fall ever since the end of the first quarter. The legal cannabis industry has been bleeding value as the year has progressed for a variety of reasons, including several high-profile scandals, middle-of-the-road earnings reports, the sudden rash of vape-associated lung illnesses, an increasingly murky picture on when the U.S. might finally end marijuana prohibition at the federal level, and an overall rocky stock market due to President Trump's ongoing global trade war. 

While a handful of pot stocks do appear to be close to hitting a bottom, investors should arguably continue to avoid some of the industry's biggest names for the remainder of 2019. For instance, Aurora Cannabis (NYSE:ACB) and Tilray (NASDAQ:TLRY) both seem to be headed for a particularly rough fourth quarter from a share performance standpoint. Read on to find out more.  

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Aurora Cannabis is a falling knife

Aurora was one of the hottest pot stocks during the first quarter of 2019, with its shares gaining an astounding 82.6% during the first three months of the year. Retail investors bid up the company's shares for two clear reasons:

  1. Aurora's hyperaggressive growth-by-acquisition strategy transformed it into the largest marijuana producer in all of Canada.
  2. The company's decision to bring on billionaire investor Nelson Peltz seemed like a prelude to a marquee partnering deal.

Aurora's top dog status on the production front and the hiring of Peltz, however, have yet to pay dividends. The pot titan badly missed its own fiscal fourth-quarter sales guidance and it still hasn't landed a premiere partnership. Complicating matters further, there are growing concerns about the company's liquidity, as well as the potential for massive write-offs in the near future due to its acquisition frenzy over the past three years. 

Nonetheless, Aurora's stock still sports a relatively rich premium. That's not a favorable setup for a company that, at best, will simply break even in the next fiscal year. Aurora's shares therefore appear poised to continue their march southward over the duration of the fourth quarter and perhaps well into next year. Simply put, investors shouldn't try to catch this falling knife.       

Tilray: More downside on the way

Tilray's stock has now lost a staggering 63% of its value over the first nine months of 2019. Nevertheless, investors should still probably keep their distance for the foreseeable future. 

The brief rundown is that Tilray quickly became one of the most highly valued pot companies in the world last year following its debut on the Nasdaq stock exchange. The company's status as a ground-breaking pioneer on several fronts, combined with its exceedingly low float, caused its stock to take flight in 2018.

Tilray's shares, though, have come crashing back to Earth in 2019 for one crystal-clear reason. Namely, Tilray has staked its future largely on next-generation products like cannabis-infused beverages through a partnership with Anheuser-Busch InBev and medical marijuana.

In the long run, the company's business model could prove to be a winning play. Cannabis-infused drinks are widely expected to mushroom into an enormous market within an very short time span, and medically oriented marijuana offers the potential for a bona fide economic moat in the form of patent protection. However, Tilray's decision to place less of an emphasis on recreational products compared to the broader field of Canadian pot producers has dampened its near-term outlook. 

The key takeaway is that Tilray may take several years to fully capitalize on its somewhat unique business model. Unfortunately, the market was clearly expecting a lot more from the company in the near term. At approximately 7.4 times next year's projected sales, after all, Tilray's stock is still one of the most expensive within the realm of Canadian pot producers. So despite Tilray's sharp drop this year, there's good reason to believe that this beaten-down pot stock may have further to fall before hitting rock bottom.