As you're probably aware, marijuana stocks had an awful 2019. Though last year was supposed to be when cannabis stocks proved to Wall Street that they deserved premium valuations, supply issues in Canada and high tax rates in select U.S. markets derailed these plans. Instead, most pot stocks lost money as the black market continued to thrive throughout North America.

But what you might be surprised to learn is that, in spite of these struggles, big-time money managers were buyers of cannabis stocks during the fourth quarter.

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

Image source: Getty Images.

No joke: Money managers (even billionaires) bought cannabis stocks in Q4

Every quarter, asset management firms with more than $100 million under management are required to file Form 13F with the Securities and Exchange Commission. Form 13F provides an under-the-hood look at what the brightest minds on Wall Street were buying and selling in the preceding quarter. This past weekend marked the deadline for money managers to file Form 13F for the fourth quarter.

What really stood out, courtesy of data provided by 13F aggregator WhaleWisdom.com, is that four pot stocks saw a significant uptick in institutional ownership, at least among 13F filers. Between the end of the third quarter and the end of the fourth quarter, the amount of shares held by 13F filers in the following four marijuana stocks increased by a double-digit percentage:

What's more, each of these pot stocks saw buying from billionaire money managers. Ken Griffin's Citadel Advisors opened a position in or added to all four of these cannabis stocks, with the largest addition (on a share basis) going to Aurora Cannabis. Griffin's Citadel purchased 2.86 million shares of Aurora in Q4, thereby pushing its total holdings in the company up to 3.17 million shares.

Furthermore, billionaire Jim Simons' Renaissance Technologies acquired nearly 1.4 million shares of HEXO during the fourth quarter, pushing its holding in the stock to about 1.43 million shares.

A smoldering dried cannabis bud that's beginning to turn black.

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Billionaire money managers are probably going to regret buying these four pot stocks

While money managers' optimism looks to be a positive for this downtrodden industry, I wouldn't discount the possibility that these asset managers could be proven terribly wrong.

For one, none of these four cannabis stocks are anywhere near profitability. Last week, Aurora Cannabis reported its highly anticipated fiscal second-quarter results, which featured a 119.6 million Canadian dollars operating loss. Mind you, this included a CA$7.1 million fair value adjustment in the company's favor. Meanwhile, HEXO's management team has suggested that the company would need to earn 20% of national market share to become profitable on a recurring basis. That's a seemingly impossible task given domestic supply issues and industrywide cash constraints.

Speaking of cash constraints, only Cronos Group isn't seemingly in dire need of capital to execute on its long-term strategy. Cronos Group netted $1.8 billion (that's U.S.) in March 2019 via an equity investment from Altria Group. It still had more than $1.5 billion at its disposal as of its most recent quarter. Comparatively, HEXO has raised approximately CA$100 million from a combination of common stock offerings and a convertible note offering since October, while Tilray will likely look to do the same with convertible offerings. Aurora Cannabis' finances are also clearly in question, according to a couple of Wall Street analysts.

This quartet of cannabis stocks has also done a very poor job of evaluating and pricing the businesses they've acquired. While it's not uncommon for some level of goodwill to be accounted for following an acquisition, cannabis stock balance sheet have been drowning in goodwill of late. Aurora Cannabis wrote down CA$762.2 million in goodwill in its most recent quarter, and I suspect still has plenty of impairments to follow. In the meantime, a little over half the value of Tilray's $316 million purchase (that's U.S.) of food and hemp products company Manitoba Harvest wound up being recognized as goodwill.  The premiums paid for early-stage acquisitions are unlikely to be recouped, which means writedowns could become standard practice for pot stocks in 2020.

A visibly frustrated businessman who's putting his hands up in the air while reading something on his laptop.

Image source: Getty Images.

Another problem with most of this quartet is that Wall Street and investors have lost faith in management. Aurora's longtime CEO, Terry Booth, announced his resignation (and retirement) just over three weeks ago following Aurora's numerous struggles. Then there's HEXO's Sebastien St-Louis, who's struggled to meet virtually all of the goals laid out by the company's management team. Something similar can be said for Tilray CEO Brendan Kennedy, who decided to retool his company's strategy out of the blue in March 2019.

Lastly, there are external factors that need to be accounted for. As an example, Ontario is still in the process of initially vetting dispensary licensing applications. This means that while the number of open retail locations in Canada's most populous province should rise significantly in 2020, it's still going to take some time before we witness significant sell-through for cannabis stocks. It should be noted that most of these pot stocks are on the defensive, with Aurora halting construction at two of its largest grow farms, HEXO idling about a third of its peak production, and Cronos Group repurposing some of its growing space at its only decently sized cultivation facility (Peace Naturals).

In short, billionaire money managers hoping for some green may wind up sorely disappointed.