It'd be fair to say that the past year has not gone as planned for marijuana stocks. Although the first quarter of 2019 started off well, the remaining nine months of the year were a nightmare for investors.

In Canada, supply issues were clearly front and center, with Ontario's inability to open a sufficient number of dispensaries and Health Canada's delayed launch of high-margin derivatives adversely impacting pot stocks. Meanwhile, in the U.S., exceptionally high tax rates have made it virtually impossible for licensed producers to compete with the black market. With few exceptions, cannabis stocks have disappointed.

Unfortunately, this disappointment could grow in 2020.

A magnifying glass being held above a potted cannabis plant.

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Marijuana stock goodwill is soaring, and writedowns are in the offing

You see, the pot industry has a goodwill problem. Goodwill is the amount of premium that one company pays for another in an acquisition above and beyond tangible assets. While goodwill is commonplace in an acquisition, there's no precedent to valuing companies in the cannabis space. As a result, it looks as if pretty much all completed buyouts in the pot arena were grossly overpriced.

In an ideal world, when one company acquires another, it looks to build out existing infrastructure and monetize any patents to recoup or significantly lessen any goodwill on its balance sheet. But that's not likely to happen in the cannabis space, with goodwill for some companies representing a substantial percentage of total assets. And if you don't think goodwill is a big deal, check out what a mammoth writedown did to Kraft Heinz last year.

With this being said, here are three cannabis stocks currently at high risk of an eventual writedown on their goodwill.

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Aurora Cannabis

There's not a marijuana stock with a bigger red flag than Aurora Cannabis (NYSE:ACB), which ended its fiscal first quarter with a whopping 3.17 billion Canadian dollars in goodwill. This represents 57% of the company's total assets.

Aurora Cannabis has made more than a dozen acquisitions since August 2016, and they've pretty much all resulted in goodwill being added to the company's balance sheet. This includes what I've dubbed the "worst marijuana acquisition in history" -- the CA$2.64 billion buyout of Ontario's MedReleaf. Following Aurora's recent announcement that it was putting the Exeter facility up for sale for CA$17 million (the Exeter greenhouse was acquired in the MedReleaf buyout), it's become apparent that all Aurora really purchased for CA$2.64 billion was the Bradford and Markham grow farms, capable of 35,000 kilos per year combined.

Aurora's chances of recouping CA$3.17 billion in goodwill, or anywhere close to this amount, are slim to none, especially with the company cutting its peak annual production by as much as 400,000 kilos via construction project halts and the aforementioned Exeter sale. A significant writedown -- one that might be larger than its current market cap -- seems inevitable.

A cannabis leaf laid atop a one hundred-dollar bill, with Ben Franklin's eyes peering between the leaves.

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Canopy Growth

The largest marijuana stock in the world by market cap, Canopy Growth (NYSE:CGC), is also very much on the radar for a substantial writedown. It ended the fiscal second quarter with CA$1.91 billion in goodwill, which equates to 23% of the company's total assets. And this percentage could continue to grow as Canopy's cash hoard dwindles.

Unlike Aurora Cannabis, Canopy Growth doesn't have one or two massive acquisitions that stand out as being grossly overpriced. Instead, Canopy has mostly made small to medium-sized buyouts that have added up over time.

What makes it unlikely that Canopy will recoup a significant portion of its goodwill is the current state of disarray evidenced by its income statement. This is a company that's losing more money than any other cannabis stock on an operating basis and that delivered a fiscal second-quarter report in which share-based compensation alone outpaced the company's net sales.

Costs have been out of control for the company for some time, and the hope is that incoming CEO David Klein can reduce expenditures and lessen Canopy's cash outflow. However, Klein lacks marijuana industry experience, meaning Canopy's long-term growth strategy is highly uncertain. This looks to be a recipe for future writedowns.

A large cannabis dispensary sign in front of a retail store.

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iAnthus Capital Holdings

Don't think for a moment that goodwill is solely a problem with Canadian pot companies. Vertically integrated multistate operator (MSO) iAnthus Capital Holdings (OTC:ITHUF) wound up piling on the goodwill following the closing of its all-stock MPX Bioceutical acquisition in February 2019. As of Sept. 30, 2019, iAnthus was carrying around CA$440.4 million in goodwill, which accounts for 53% of its total assets.

On one hand, iAnthus is operating in the U.S., where supply issues aren't nearly as bad as in Canada. Although this means having to set up redundant operations in the 11 states where the company has a retail presence (interstate transport isn't allowed), iAnthus should see rapid sales growth. In total, iAnthus has 30 retail locations open as of January 2020 and has licenses to open up to 68 dispensaries.

On the other hand, most MSOs, including iAnthus, have come to lean on acquisitions as a means of expansion. Filing for cultivation and sales licenses takes time, which has encouraged consolidation. iAnthus Capital is therefore likely to continue overpaying for complementary businesses in an effort to gobble up market share in potential billion-dollar states. With 53% of total assets already tied up in goodwill and this figure potentially heading higher, I view a modest writedown as a likely outcome in the future.