What happened

There's little good news to report in the marijuana industry today, as shares of Charlotte's Web Holdings (OTC:CWBHF) plunged 9.2% as of 12:20 p.m. EDT, and shares of Canopy Growth (NASDAQ:CGC) and Aurora Cannabis (NASDAQ:ACB) follow them down 2.3% and 2.6%, respectively.

So what

We'll begin with Charlotte's Web and its first-quarter earnings report released this morning. The self-described "market share leader in full spectrum cannabidiol (CBD) hemp extract wellness products" isn't looking particularly healthy itself today, after reporting only $23.4 million in Q1 sales (Wall Street was hoping for $27.4 million). Street analysts were also looking for a loss of $0.05 per diluted share for the quarter, but it turns out Charlotte's Web lost twice that: $0.10 per share. On the plus side, Charlotte's Web's cash burn rate declined significantly year over year, down 43% to just $9.4 million. But investors seem to be focusing more on the lower-than-expected sales today, and the higher than expected losses.    

Smoke filled room in black and white

Image source: Getty Images.

Granted, Charlotte's stock-in-trade is cannabidiol, a product related to actual marijuana, but not quite the same. And yet, as we turn to the "real" marijuana companies, the news doesn't get much better.

At Canopy Growth, investors got hit with a lowered price target, with CIBC cutting its valuation of the Canadian cannabis stock by 31%, to 38 Canadian dollars. On the plus side, that's still $31.39, implying 32% profit potential. However, CIBC still hesitated to recommend it, and kept its rating on Canopy Growth stock at neutral.

Aurora Cannabis investors got even worse news, though, as CIBC cut its valuation on that stock to CA$9 ($7.44), and downgraded Aurora Cannabis stock to "underperform." As the analyst commented in a note covered by TheFly.com, Wall Street estimates for Aurora's future earnings "appear optimistic," and Aurora is currently lagging its competitors on sales growth.

Now what

Viewed in the context of rising optimism about the prospects for marijuana legalization, declines in stock prices of some of the best known names in the cannabis industry may seem confusing to investors. And yet, when you consider that legalization of marijuana is likely to increase demand for it, and dampen demand for cannabidiol as an alternative, the declines at Charlotte's Web actually do make a lot of sense. (Plus, you know, there's that $0.10-per-share loss to digest.)

At the same time, the fact that both Canopy and Aurora are Canadian companies, where cannabis sales are currently already legal -- despite both companies being unable to make a profit off of the business -- suggests that even legalizing marijuana in the United States may not be enough to fix what ails these companies.

When you get right down to it, profits still matter most.

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.