For years, marijuana stocks could no wrong. But that's not the case any longer. Now that recreational pot is legalized in Canada, promises don't hold the clout they once did with Wall Street and investors. Rather, investors are looking for rapidly growing sales and an improvement in the bottom lines of all marijuana stocks. In many instances, pot stocks have failed to deliver.

Perhaps, then, it's no surprise that the best-known weed stocks have lost 30%, 50%, or maybe even more of their value, over the past 6.5 months. Short sellers -- investors who make money when a company's share price falls -- have certainly been happy.

Interestingly, though, short sellers haven't been adding to their positions in most marijuana stocks. This might signal that a period of peak pessimism has passed for a majority of the industry. However, there are four cannabis stocks that short sellers continue to pile into.

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

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Aurora Cannabis

Surprise! The most widely held stock by the 6 million users of online app Robinhood, Aurora Cannabis (ACB -3.45%), continues to be a beacon for pessimists. Between Aug. 29 and Sept. 29, the number of shares held by short sellers rose from 131.6 million to 153 million. For added context, Aurora has around 1 billion shares outstanding.

Pessimism appears to be building around Aurora for a variety of reasons. Part of the problem is that Canada has been facing persistent supply issues since the first day of its adult-use legalization more than a year ago. These problems, which can be tied to specific provinces and regulatory agency Health Canada, aren't going to be fixed overnight. This means a continuation of dried flower supply concerns, as well as supply worries following the launch of derivatives. And, as you might imagine, less cannabis being sold in dispensaries means weaker-than-expected operating results for Aurora.

This is also a company that's bet big on foreign markets. No cannabis grower has a larger international presence than Aurora, with representation in 25 countries, including Canada. The problem is that these foreign markets are relatively useless until domestic demand is satisfied, which, as noted, could take a while.

The icing on the cake for short sellers just might be Aurora's $3.17 billion Canadian in goodwill. It's become painfully obvious that Aurora Cannabis (and many of its peers) grossly overpaid for its acquisitions, and it's unlikely that the company will recoup the full value of this goodwill without eventually writing down a portion of it.

A dried cannabis bud and small vial of cannabinoid-rich liquid next to a small Canadian flag.

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Short sellers have also shown no mercy to Quebec-based HEXO (HEXO). Over the same August-to-September time period listed previously for Aurora, pessimists increased their short shares held from 28.7 million to 31.7 million.

This pessimistic view has proved prudent, with HEXO dropping a bombshell on Wall Street two weeks ago. The company provided updated fourth-quarter guidance that featured a new sales forecast of CA$14.5 million to CA$16.5 million, representing sequential sales growth of 19% at the midpoint from the previous quarter. The issue is that HEXO had previously called for 100% sequential sales growth in the fiscal fourth quarter. The company also wound up removing its 2020 full-year revenue guidance.

In its update, HEXO singled out three factors that are keeping it from its full potential. First, HEXO cited the slow rollout of physical dispensaries in key markets. Secondly, there's been a delay in getting derivative pot products to market, which pushed back when these higher-margin items would begin impacting the income statements of marijuana stocks like HEXO. And thirdly, HEXO noted that it's beginning to face national pricing pressures on marijuana.

Although HEXO is one of the more de-risked cannabis stocks given its large wholesale supply agreement with its home province of Quebec, the scope of these issues cited by the company cannot be ignored by investors, or pessimists.

A person holding a vial of cannabinoid-rich oil in front of flowering cannabis plants.

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Neptune Wellness Solutions

Extraction-services provider Neptune Wellness Solutions (NEPT -3.89%), which recently entered the U.S. market through its acquisition of SugarLeaf, is another pot stock that's drawn the ire of pessimists. Over the same one-month period between late August and late September, Neptune's shares held short have increased from 6.1 million to 7.7 million.

If I were to take a stab at why Neptune has a bull's-eye on its back, I'd guess that pessimists haven't been too pleased with its near-term operating results. In the company's fiscal first quarter, ended in June, Neptune recorded $4.36 million in net revenue, of which a meager $38,000 came from cannabis extraction contracts. What's more, the company's net loss chimed in at close to $6.5 million. Comparatively, peer MediPharm Labs is already profitable, despite beginning its extraction operations in November. 

On the other hand, this isn't a company, or an ancillary pot industry, I'd be thrilled about betting against. Even with very prevalent vape-related health concerns in the U.S., the demand for resins, distillates, concentrates, targeted cannabinoids, and white-label packaging services, is off the charts. Remember, derivatives are a much higher margin product than traditional dried cannabis, which means that all North American marijuana growers are going to need extraction services at some point. With not all growers handling this extraction internally, the intermediate-term contracts that Neptune is signing should lead to healthy and predictable cash flow.

An up-close view of flowering cannabis plants growing in a large indoor farm.

Image source: Getty Images.

Innovative Industrial Properties

Lastly, cannabis real estate investment trust (REIT) Innovative Industrial Properties (IIPR -1.82%) has attracted its fair share of short sellers. Between late August and late September, the number of shares held short rose from almost to 2.5 million to north of 3 million. For reference, Innovative Industrial Properties only has a little over 11 million shares outstanding.

Why the pessimism? My guess would be in response to the issues the U.S. cannabis industry is contending with. High tax rates in select states, and a lack of progress on the legalization front at the federal level, might have some investors down on the near-term prospects of the U.S. weed industry.

Further, Innovative Industrial Properties tends to issue common stock in order to raise capital for purchases. This is an incredibly common tactic used by REITs in and out of the cannabis industry. However, issuing stock means that existing shareholders may be forced to deal with the repercussions of share-based dilution.

Then again, betting against Innovative Industrial Properties probably isn't the best idea. The company's 32 owned properties have a weighted-average lease length of 15.9 years and a return on invested capital of 14.5%. These lease contracts are highly predictable, which makes betting against this company for any extended period of time a bad idea.