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For years, the green rush was virtually unstoppable -- and it's not hard to understand why. After legal weed sales more than tripled from $3.4 billion to $10.9 billion between 2014 and 2018, it seemed very feasible that Wall Street's aggressive industry sales estimates, ranging from $50 billion to $200 billion in annual sales by 2030, would come true.

However, 2019 turned into a wake-up call for pot stock investors, with a majority of cannabis stocks declining by a double-digit percentage. The losses were especially hard to swallow following a first quarter that saw more than a dozen marijuana stocks rise by at least 70%.

Without digging too deeply into the weeds, it could be rightly argued that the following three popular cannabis stocks were the biggest disappointments of them all.

The sad thing for the cannabis industry is that if there was one defining moment last year, it was the admission that Ontario-based CannTrust (NYSE: CTST) had grown marijuana illegally in five unlicensed rooms at its flagship Niagara campus for a period of six months (October 2018-March 2019). Until this early July admission, there had been a few conflicts of interest uncovered among execs at other cannabis companies, but nothing as blatant as a company purposefully subverting the Cannabis Act.

Unfortunately for CannTrust shareholders, things unraveled even further. Emails appeared to link now-former CEO Peter Aceto to the illicit grow, which led to his termination. Following its two-month-long investigation, Health Canada wound up suspending the company's cultivation and sales licenses, and provided CannTrust with a laundry list of things it would need to do to regain compliance. Among those factors includes destroying about $58 million worth of inventory.



As for 2020, it may not get much better for CannTrust -- at least in the first half of the year. CannTrust's share price is below the minimum required listing price for the New York Stock Exchange, and the company has failed to file its operating results since May of last year. Delisting looks like a near-certainty at this point. Although CannTrust could wind up being a bad-news buy at some point in 2020, it easily goes down as the biggest disappointment of 2019.

If you were a shareholder of vertically integrated multistate operator (MSO) MedMen Enterprises (OTC: MMNFF) last year, chances are that you didn't enjoy the ride. MedMen's decline of 81%, when rounded, matched that of CannTrust.

On paper, everything looked like it should have gone MedMen's way when 2019 began. It was focusing its retail footprint in California, the largest marijuana market in the world, and had announced an all-stock buyout of privately held MSO PharmaCann, which was designed to quickly double its state-level presence. But by the end of the year, MedMen had completely shelved its acquisition of PharmaCann and California's weed sales continued to underperform. High tax rates in the Golden State have made it very difficult for dispensaries to compete against illicit production.

For MedMen, California's underperformance has meant hefty losses. For fiscal 2019, ended in June, MedMen totaled $231.7 million in operating losses, all while sales at existing California locations grew a modest 5% to 10% on a sequential quarterly basis. 

What's more, MedMen's balance sheet is very worrisome. Even with $280 million in equity pledged from Gotham Green Partners, MedMen's huge losses offer no guarantee that it has enough capital to survive over the long term.

Keep in mind that it wasn't just small-cap stocks that were rocked in 2019. Shortly after its initial public offering in July 2018, Tilray (NASDAQ: TLRY) rocketed past Canopy Growth to become the largest pot stock in the world, by market cap. Even after losing that title, it still entered the year as one of the five-largest cannabis stocks on the planet. However, it ended 2019 as a small-cap stock with a $1.7 billion market cap.

Tilray's pummeling last year, which caused long-term shareholders to lose 76% of their investment, stemmed from a number of factors. First of all, Canada has been dealing with persistent supply issues since day one of legalization (Oct. 17, 2018). Regulatory agency Health Canada has been slow to approve licensing applications, and wound up delaying the launch of high-margin derivatives in 2019 by two months. Meanwhile, the country's most populated province, Ontario, has struggled to open dispensaries, thereby coercing consumers to buy illicit product.

Another issue for Tilray is a lack of faith in management. CEO Brendan Kennedy announced plans in March to focus future investments on Europe and the United States. While these are expected to be lucrative cannabis markets over the long run, it's an odd move to make given that Canada is the only industrialized country to have legalized recreational pot.

Lastly, Tilray seriously disappointed in the earnings department. With insufficient production, Tilray has regularly turned to wholesale cannabis purchases, thereby crushing its own margins. Tilray looks to be one of a small group of cannabis stocks unlikely to turn a profit prior to fiscal 2022.

Here's The Marijuana Stock You've Been Waiting ForA little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

Cannabis legalization is sweeping over North America – 11 states plus Washington, D.C., have all legalized recreational marijuana over the last few years, and full legalization came to Canada in October 2018.

Because a game-changing deal just went down between the Ontario government and this powerhouse company...and you need to hear this story today if you have even considered investing in pot stocks.

Sean Williams owns shares of CannTrust Holdings Inc. The Motley Fool recommends CannTrust Holdings Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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