The seemingly unstoppable expansion of marijuana legalization is generating undeniable enthusiasm and economic optimism about the future of the industry. But upon closer inspection, the cannabis market isn’t as bullish as it may appear. Somewhat ironically, it’s the hype surrounding the legal market that’s setting up companies for major losses. And Canadian cannabis producer Aphria is a case in point. On Monday, the company’s third-quarter report sent its shares plummeting 15 percent. Market analysts didn’t have high hopes for Aphria to begin with, but the company performed much worse than expected. So what happened?

Positive Feedback Loop of Hype Ends Up Hitting Aphria’s Stock Value Hard

At the root of Canadian cannabis producer Aphria’s problems is simply that it needed to sell more weed. But a failed takeover bid and a $50 million over-valuation of its Latin American assets didn’t help. Neither did a high-profile analysis of Aphria’s earnings, which showed “negative margins, decreased production volume, regulatory scrutiny and a large write off for its Latin American acquisitions, which we think will be the first of many,” according to Quintessential Capital Management‘s Gabriel Grego.

In fact, the report was so damning that Quintessential took up a short position on Aphria, saying that its research showed the company was over-hyping their actual performance. Aphria had itself over-hyped, or fallen for the hype of production facilities in Colombia, Argentina and Jamaica. Hindenburg Research said their analysis suggested those assets were worthless.

Then, there’s how much Aphria tried to hype itself to Green Growth Brands, a U.S. cannabis company that initiated a hostile takeover attempt in December. Aphria wanted its shareholders to reject the takeover bid, claiming Green Growth’s offer low-balled the company’s value. Aphria’s Monday announcement of a quarterly loss in excess of $100 million prompted an agreement to end the takeover offer. “We are bringing our offer to an end on good terms with Aphria,” Green Growth Brand CEO Peter Horvath told Markets Insider.

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Despite Surging Revenue, Aphria’s Dip Drags Down Canada’s Cannabis Giants

The fact that Aphria’s third-quarter losses overshadowed the company’s surging revenue, which climbed to C$73.6 million from C$10.3 million in the first quarter of full legalization in Canada, suggests mismanagement. No wonder, then, that Aphria came under scrutiny in February for the undisclosed conflicts of interest of some of its board members. Aphria is since under new management, who are working to correct course.

But other companies are in the same boat as Aphria. Organigram Holdings, for example, fell 4.5 percent. While not as dire as Aphria’s drop in share price, Organigram’s stock dropped for the same reason: losses that outweighed revenue.

Other rival cannabis companies, like Canopy Growth, Aurora Cannabis, Tilray and Cronos Group are all down. And so are many of the smaller players. Aphria’s 15 percent drop is depressing the entire industry. And that forecasts a more volatile market, especially with Canada preparing to launch oils and edibles this fall. The retail extracts market is already causing major shifts as companies that have focused primarily on flower pivot to concentrates.

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