Calling it a disappointment still seems something of an understatement. Canopy Growth (NYSE:CGC) stock, once one of the highest high-flyers among cannabis stocks, has become a major letdown.

Traders and the financial media certainly couldn’t stop raving about Canopy Growth stock in August, shortly after Constellation Brands (NYSE:STZ) invested billions of dollars in the company, and shortly before Canada legalized marijuana for purely recreational purposes.

Since that legalization-prodded peak, however, CGC stock has been chopped in half. What gives?

The answer is one that more than a few CGC stock investors aren’t going to like, but that doesn’t make it not the answer. That is, FOMO — the fear of missing out — prompted a huge number of people to buy into a premise they like and a company surrounded by some terrific story-telling. The dust of hysteria is being washed away by rains of reality though, and traders are finally starting to see the fiscal math for CGC stock is nowhere near adding up.

Canopy Growth Under the Microscope

Put your pitchforks away; this isn’t what some will undoubtedly call a “hit piece.” Cannabis is the real deal for a lot of reasons.

That doesn’t make CGC stock immune to the kind of hype that sets unsuspecting investors up for a fall, however.

Canopy Growth is … a lot of things. First and foremost it’s a supplier of cannabis itself. But, it has also developed a CBD business that offers raw oils, capsules and other derivatives.

Canopy is also a hemp player, which for most intents and purposes is THC-free cannabis. Not only is hemp a good source of cannabidiol, it’s a plant that can be used as the basis for a variety of manufactured goods. The recent passage of a farm bill in the United States opens the door for wider hemp usage, in turn presenting another opportunity for Canopy Growth.

And yet, that’s still not all Canopy Growth is. Tweed, a subsidiary, offers marijuana seeds to individual growers. Canopy Health Innovations and Canopy Rivers Corporation are also part of the Canopy Growth family, and CEO Bruce Linton is also involved with Austrialia’s AusCann Group.

All told, as of the most recent look Canopy Growth manages 21 subsidiaries and has investments in 13 different, but affiliated outfits. In that vein, Linton’s aim of becoming the Amazon (NASDAQ:AMZN) or Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) of the cannabis industry doesn’t exactly seem far-fetched.

Still, this is a story stock packed with reason for investor concern.

What Nobody Wants to Say

It’s unpopular being the bearer of bad news. Nevertheless, despite all the hype, Canopy Growth is far from being ready for prime-time.

Yes, Canopy Growth operates “ten licensed cannabis production sites with over 4.3 million square feet of production capacity, including over 500,000 square feet of GMP certified production space.” It’s impressive to be sure. It’s not the kind of scale a $10 billion company needs to justify its $10 billion market cap though.

As the marijuana industry matures and the commodity starts being priced like commodity, as is always the case, it’s the mega-suppliers that will achieve the scale needed to make it a viable, consistently profitable business. Think names like Archer Daniels Midland (NYSE:ADM) or Altria Group (NYSE:MO), both of which already have the size, funding and distributions network Canopy Growth can only dream of.

And don’t count on Linton leading the company to competitive scale and production either.

Bruce Linton is a credible enough chief for the young company, but hardly a farming or cannabis veteran. His first foray into the business was in 2012, when he founded Tweed and Canopy Growth, specifically to capitalize on the then-new opportunity. (Only two U.S. states, but not yet Canada, opted to legalize recreational marijuana then, though the movement was palpable and becoming inevitable, at the time.) Prior to that, Linton was involved with a variety of technology and web-centric companies, staring a handful on his own.

His learning curve may be steep.

And no, it’s not unfair to wonder if the presentation of another business opportunity could divert the somewhat serial entrepreneur’s attention. It’s also not unfair to be concerned that the integration of 21 different subsidiaries and relationships with 13 affiliates is far from seamless.

In the meantime, Canopy Growth is burning cash. Last quarter, the company turned $23.3 million (Canadian) worth of revenue into an operating loss of $214 million. Some expenses were purely start-up related, but massive increases in spending on sales, administration and stock-based compensation aren’t likely to abate soon. This is a startup. Getting startups going is never cheap, and they rarely work their way into the black as quickly as hoped.

Bottom Line for CGC Stock

It’s not like we haven’t seen it before — a premise investors fell in love with, but a company that couldn’t actually pay its bills. GoPro (NASDAQ:GPRO) comes to mind.

It’s also not as if CGC stock is alone in dishing out sea-sickening swings linked to the advent of legalized cannabis. Aurora Cannabis (NYSE:ACB) and Tilray (NASDAQ:TLRY) are a couple of other names in the business that soared when the broad legalized cannabis premise was re-floated last year, but tanked as more and more investors looked under the hood. They didn’t like the sound or appearance of those engines. The math, as they say, doesn’t add up.

It may not for a long, long time for any of these companies either … if it ever does. Just ask the people who bought into the 3D printing mania back in 2012, or rare earth mining stocks in 2004, or the gold mania of 2011, the solar panel frenzy of 2008, dot-coms in the late 90’s, the cryptocurrency craze of 2018 and Chinese stocks in 2007 just to name a few. Those were all “can’t miss” opportunities too, all of which ended up burning investors.

In that light, it’s encouraging CGC stock hasn’t suffered more than it has. That, however, may mostly be because investors managed to keep this round of marijuana mania mostly in perspective to begin with.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.