Marijuana is expected to be the greatest investment opportunity in recent memory, and Wall Street's growth projections show it. Although estimates vary wildly on Wall Street, which we'd expect with an industry that has no legal precedent, most analysts are calling for $50 billion to as much as $200 billion in worldwide annual sales in a decade. Such robust growth would certainly give investors plenty of opportunity to profit.

This growth was expected to be on full display in Canada in 2019. Having become the first country to legalize recreational cannabis in the modern era, our neighbor to the north is providing a blueprint that other countries might be able to follow.

However, Canada's first year of marijuana sales did not go as planned.

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

Image source: Getty Images.

Canadian cannabis sales reversed course in September

Every month, often on the 22nd, Statistics Canada releases monthly retail sales data for a variety of industries in the country, including licensed cannabis stores. The data released is always lagging by about 2.5 months, with the agency reporting September retail sales figures this past Friday (Nov. 22). What was most notable about the newest cannabis sales data is that it broke a six-month streak of sequential revenue growth.

Here's what licensed cannabis store revenue looks like through the first 11.5 months of recreational legalization (all figures in Canadian dollars (CA$), with U.S. dollar equivalency in parenthesis): 

  • October: CA$53.68 million ($40.38 million), since Oct. 17
  • November: CA$53.73 million ($40.41 million)
  • December: CA$57.34 million ($43.13 million)
  • January: CA$54.88 million ($41.28 million)
  • February: CA$51.66 million ($38.86 million)
  • March: CA$60.94 million ($45.84 million)
  • April: CA$74.58 million ($56.1 million)
  • May: CA$85.81 million ($64.54 million)
  • June: CA$91.46 million ($68.79 million)
  • July: CA$107.36 million ($80.75 million)
  • August: CA$125.95 million ($94.73 million)
  • September: CA$122.93 million ($92.46 million)

All told, that's CA$940.32 in sales ($707.27 million) since Oct. 17, and it looks to put Canada on track for just over CA$1 billion in trailing-12-month revenue in its first full year of sales.

But, as noted, sequential quarterly sales fell by CA$3 million in September from August, demonstrating just how much of a learning curve is still to come for our neighbor to the north.

Multiple clear jars of unique cannabis strains atop a dispensary store counter.

Image source: Getty Images.

Three things wrong with Canada's marijuana industry

Based on the sheer volume of black-market marijuana sales conducted globally each year, it's pretty obvious that there's plenty of demand in the cannabis space. So, why aren't Canadian pot stocks successfully capturing this demand? The answer looks to be threefold.

The first part of the blame lies with regulatory agency Health Canada, which has struggled to deal with an insanely large backlog of cultivation, processing, and sales license applications. The hope had been that Canadian weed stocks would file their applications and be able to get approval to grow and sell marijuana pretty quickly. Unfortunately, this has been far from the case. Earlier this month, Aphria was given the green light to plant at the joint venture Aphria Diamond facility after at least an 18-month wait for approval following the submission of its licensing application.

To build on this, Health Canada also delayed the launch of derivative pot products, such as vapes, infused beverages, and edibles. Growers and Wall Street had been looking for an October launch at the latest. However, these higher-margin products aren't going to see the light of day on retail shelves in dispensaries until the midpoint of December.

Secondly, certain provinces have hurt the industry by slow-stepping the rollout of physical dispensaries. The now-infamous example is Canada's most populous province, Ontario, which is home to about 38% of the country's population. Ontario had allowed just two dozen physical retail locations to open a full year in the post-legalization environment. That's one store for every 604,200 people. With so few legal purchasing options available, it's allowed the black market to continue thriving, even in a legalized environment.

Lastly, there's the black market itself, which is easily undercutting legal marijuana on price. Statistics Canada recently reported that illicit pot was 45.4% cheaper on a per-gram basis than legal cannabis during the third quarter. Since illegal producers don't have to worry about Canada's excise tax or licensing, it's been nearly impossible for pot stocks to compete on price.

Scissors cutting through a one hundred dollar bill.

Image source: Getty Images.

Canadian pot stocks readjust expectations

With supply clearly going to be an issue for the foreseeable future, Canadian marijuana stocks have begun to adjust their expectations to match a challenging market environment.

For some, this means cutting production in order to reduce costs. Aurora Cannabis (NASDAQ:ACB), the most-held stock on online investing app Robinhood, recently announced plans to halt construction at Aurora Nordic 2 in Denmark and Aurora Sun in Alberta, Canada, in order to preserve capital. For Aurora, these projects were expected to hit their peak annual run rate by mid-2020 of at least 120,000 kilos and 230,000 kilos, respectively. Now Aurora is counting on only six grow rooms being operational at Aurora Sun for fiscal 2020. Altogether, Aurora's projected peak output by the end of its fiscal 2020 has been halved.

Some cannabis stocks have gone even further and decided to cut jobs. Quebec-based HEXO (NASDAQ:HEXO) announced during its fiscal fourth-quarter operating release that it would be parting ways with 200 employees from a variety of departments. This comes atop HEXO's plans to idle its Niagara grow farm, which it acquired via the Newstrike Brands purchase. HEXO's management cited the lack of physical dispensaries, weaker per-gram pricing on recreational pot, and the delayed rollout of derivatives as the sources of its recent woes.

And then there's OrganiGram Holdings (NASDAQ:OGI), which simply chose to readjust Wall Street's expectations about its upcoming operating results. OrganiGram has a lot working in its favor, including supply deals with all of Canada's provinces, and some of the highest peak efficiency yields in the entire industry. But even then, the slow rollout of derivatives and Ontario's inability to license retail stores led OrganiGram to forecast a sequential quarterly revenue decline of about 34% for the fiscal fourth quarter.

There's no doubt that marijuana stocks will remain a hot investment in the quarters to come, but this growth story is certainly not going to be without its speed bumps and hiccups.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.