What happened

Marijuana stocks are getting shellacked in Monday morning trading. As of 11:05 a.m. EDT, shares of Canopy Growth (CGC -1.36%) have fallen 5.8%, Tilray (TLRY -6.60%) is down 6%, and Aurora Cannabis (ACB -3.02%) is bringing up the rear with a 6.3% decline.

Partly this is a consequence of today's broad stock market sell-off (the S&P 500 is down 1.6%). But partly, Wall Street is to blame.

Investor holds head in dismay in front of a stock chart showing a red arrow going down

Image source: Getty Images.

So what

The past several days have seen a series of cuts to marijuana stock price targets among Wall Street analysts, you see, in advance of Aurora Cannabis' upcoming fiscal fourth-quarter 2021 earnings report (due out tomorrow).

The bad news began back on Thursday, when Roth Capital cut its price target on Tilray in half, to $12 a share, commenting that management's sales projections for fiscal 2024 were too "hopeful" to be true. Tilray is projecting $4 billion in sales that year, by the way -- but according to data from S&P Global Market Intelligence, most analysts on Wall Street think sales will be only $1.3 billion.

For context, Tilray's $4 billion promise might have made sense when it was growing sales six-fold year over year (like in 2019), or even just doubling sales (as it did in 2020). After sales growth slowed to just 27% year over year this year, however, hopes of the company growing from $513 million in annual revenue currently to eight times that number three years from now do seem a bit overoptimistic. 

And the problems don't end with Tilray. One day after that price target cut came out, investment bank Cantor Fitzgerald lowered its price target on Aurora Cannabis by a third (to 8.30 Canadian dollars), reported TheFly.com. More than just a slowdown, here Cantor warned of a sequential "mid-teens drop" in Canadian sales of cannabis for recreational use.

Now what

Finally, this morning both Cantor and Piper Sandler teamed up to jointly cut price targets on Canopy Growth (to CA$21 and CA$15, respectively). Neither analyst came right out and suggested selling Canopy stock ahead of Aurora's earnings report, but both are only "neutral" on Canopy's prospects.

Cantor Fitzgerald echoed its concerns about declining sales, and noted that while Canopy Growth is predicting it will achieve positive earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of 2022, the analyst doesn't think that's likely to happen before mid-2023. For its part, Piper also noted the 2022 prediction, but said "we consider [that] very difficult to achieve" in light of the market share losses Canopy Growth is suffering.  

In short, it's bad news all around for the cannabis companies, and investors have started to notice.