What happened

Canadian marijuana stocks have had a tough go of it this week. Shares of Canopy Growth (CGC 1.22%)Sundial Growers (SNDL -0.91%), and Tilray (TLRY -1.55%) were all down by over 14% this week as of noon ET Friday, according to data from S&P Global Market Intelligence

So what 

Three key issues are weighing on Canopy, Sundial, and Tilray at the moment:

  1. The emergence of the omicron variant is already sparking travel restrictions in Canada. While pot tourism isn't a huge moneymaker for these companies yet, every little bit helps when you are consistently writing off millions of dollars worth of inventory almost every single quarter. In their latest earnings reports, for example, Canopy Growth and Sundial were both forced to write off millions in inventory due to sluggish sales and changing consumer trends.
  2. Recent comments from Moderna CEO Stéphane Bancel suggesting that the first wave of COVID-19 vaccines might be ineffective against the omicron variant have sparked concerns on Wall Street that the world may return to the early days of the pandemic. This fear has caused investors to shy away from risky growth vehicles like marijuana stocks this week. 
  3. Canopy and Tilray are both banking heavily on the U.S. legalizing marijuana at the federal level soon. Specifically, these two pot titans already have deals in place to quickly ramp up their U.S. market share upon federal clearance. Sundial, for its part, appears to be preparing to follow suit by stockpiling cash for a potential landmark deal of its own in the United States. Despite a recent Republican-led charge to legalize marijuana, however, President Biden has made little to no effort to even fulfill his campaign promise of simply decriminalizing marijuana. As such, federal marijuana legalization for either medical or recreational purposes doesn't appear to be a realistic goal under this administration. This harsh reality is clearly hurting valuations among these top three Canadian licensed producers right now.
A marijuana bud in a grinder.

Image source: Getty Images.

Now what

Should bargain hunters take advantage of this weakness in the shares of Canopy, Sundial, and/or Tilray? That question all depends on your investing timeline. All three companies should be winners over the long term. But their near-term prospects are unremarkable, to put it mildly. The long and short of it is that the Canadian marijuana market is overflowing with product right now. As a result, these three pot titans may all struggle to hit their fiscal targets over the next year. And unless President Biden has a sudden change of heart, the all-important U.S. market will remain largely off-limits to these Canadian licensed producers.

That's not a compelling outlook. Investors, in turn, might want to take a cautious approach with this trio of marijuana stocks for the time being, despite their step backward this week.