A year ago, all expectations were that the marijuana industry would have investors seeing green -- and the first quarter certainly suggested this opinion was accurate. At the end of March, more than a dozen pot stocks had risen by at least 70% on a year-to-date basis, and Wall Street was touting some exorbitant sales forecasts by 2030, one of which called for up to $200 billion in annual sales.

But to use the most cliche of all cannabis phrases, things have "gone up in smoke" over the past eight months. In fact, things have gotten so dicey for marijuana stocks that quite a few throughout North America are now scrambling to conserve their cash and cut costs to match more challenging market conditions.

A handful of dried cannabis buds lying atop a messy pile of cash.

Image source: Getty Images.

Two significant U.S. deals get the axe

One way we've witnessed cannabis stocks cut back on their spending is by backing out of previously announced acquisitions.

It all began with vertically integrated multistate operator MedMen Enterprises (OTC:MMNFF), which terminated its acquisition of PharmaCann on Oct. 8, 2019. When first announced, the all-stock deal was valued at $682 million but had fallen substantially in value as MedMen's share price got creamed. It was initially designed to allow MedMen to double its presence from six states to 12, as well as add more than two dozen retail licenses, making MedMen one of the largest dispensary operators in the country.

However, with MedMen losing money at an exceptional rate and forced to turn to private equity firm Gotham Green Partners for up to $280 million in financing to essentially keep its expansion strategy alive (and the lights on), it became readily apparent that buying PharmaCann would further increase costs and move MedMen into non-core markets. In exchange for forgiving a $21 million line of credit to PharmaCann, MedMen received cultivation and retail assets in Illinois and Virginia in return. 

Then, just this past week, Cresco Labs (OTC:CRLBF) announced it would be shelving its acquisition of VidaCann, which operates 13 retail locations in medical marijuana-legal Florida. When the deal was first announced in mid-March, it was slapped with a price tag of $120 million in cash and stock. However, with Cresco's stock plunging in recent months, the deal's value skewed more heavily toward cash. Cresco Labs needed to conserve capital while in the midst of completing its all-stock purchase of Origin House, so it chose to terminate its purchase of privately held VidaCann. 

A businessman in a suit holding up a for sale sign.

Image source: Getty Images.

Sale-leaseback agreements are becoming more popular

Another means by which cannabis stocks have been attempting to conserve and/or bolster their cash on hand is through sale-leaseback agreements. In other words, pot stocks are selling assets that they own, such as cultivation farms, processing facilities, or retail locations, to a real estate investment trust (REIT), and then leasing the same property back after pocketing the cash from the sale.

For example, when Cresco Labs announced that it was shelving its VidaCann deal, it also announced a sale-leaseback agreement with Innovative Industrial Properties (NYSE:IIPR) for two of its assets. Cresco will sell its Yellow Springs, Ohio and Marshall, Michigan properties to Innovative Industrial in return for $38 million, which is inclusive of capital that will be used for tenant improvement at both properties. In effect, Cresco Labs saves more than $150 million by not completing the VidaCann deal and by selling these two assets, all while Innovative Industrial Properties broadens its moneymaking asset portfolio even more.

Understand, though, that even the most successful pot stocks have been partaking in sale-leaseback agreements. There's arguably no cannabis stock that's been more successful on the sales growth and income front than Florida-focused Trulieve Cannabis (OTC:TCNNF), which I believe posted the strongest quarter in cannabis history recently. Yet Trulieve announced in late October that it would be selling and leasing back its 150,000-square-foot grow centers in Quincy, Florida from Innovative Industrial Properties for $17 million.

IIP is also providing up to $40 million for property improvements. This agreement follows a $3.5 million sale-leaseback between Trulieve and IIP for a 150,000-square-foot industrial facility in Massachusetts earlier this year. 

A close-up of a flowering cannabis plant in a large commercial indoor grow farm.

Image source: Getty Images.

Production cuts are compounding in Canada

Don't think for a moment that this is strictly a U.S. issue, even though the discussion so far has been on U.S.-focused pot stocks. Canadian growers are also looking to reduce their expenditures and conserve cash, and the primary means of doing that, with domestic supply in shambles, is by significantly cutting production.

The very first output-cut announcement came from The Green Organic Dutchman (OTC:TGODF) in mid-October. Green Organic Dutchman stated earlier this year that integrating new technologies at its grow sites should allow it to produce up to 219,000 kilos of peak annual output, up from a prior forecast of 195,000 kilos. And yet, according to its corporate update, the company will be targeting just 20,000 kilos to 22,000 kilos of full-year 2020 output. Green Organic Dutchman's flagship Valleyfield property, which could be capable of 130,000 kilos of yearly production, will only employ four grow rooms in 2020, yielding about 10,000 kilos.

An even bigger surprise came from Aurora Cannabis (NYSE:ACB), the most popular pot stock and the leading marijuana grower by estimated peak production. Aurora's fiscal first-quarter operating results noted that it would immediately halt construction at Aurora Nordic 2 in Denmark and Aurora Sun in Alberta. These are respectively 1 million-square-foot and 1.62-million-square-foot cultivation farms. Aurora Cannabis has projected at least 120,000 kilos and 230,00 kilos, respectively, of annual run-rate output by around mid-2020. Now, just 238,000 square feet (six grow rooms) will be active at Aurora Sun, which effectively halves Aurora's peak output potential by mid-2020 relative to its previous forecast.

Long story short, these capital-raising and cash-saving moves suggest that cannabis stocks aren't exactly sure what the future holds. That could mean plenty of volatility in the near term for investors.