The week did not start off too well for marijuana stocks Aurora Cannabis, Tilray Inc., and Sundial Growers Inc.

The companies were downgraded by a Cowen team led by Vivien Azer on Monday, as analysts become cautious about their outlook.

Azer lowered her 2020 Canadian total addressable market (TAM) forecast by 32% to C$3.5 billion ($2.6 billion) in legal sales, including medical cannabis and taxes. She had already lowered her TAM forecast by 27% since January of 2017.

“While industry challenges around doors and high quality flower supply are well understood, we now believe that the slower than expected rollout of cannabis 2.0 products will also prove as a headwind to revenues,” Azer wrote.

Cowen notes that roughly 20 stores found a severe shortage of edibles and a significant increase in value-based brands, suggesting legal cannabis is still struggling to compete with the black market’s cheaper prices. That’s “creating a bifurcation toward either value- or premium-priced flower with a glut of mid-priced inventory,” she wrote.

“Unfortunately, we haven’t seen novel medical products yet to be introduced in Canada, while in international markets, category development has been hampered by restrictive policies around the issuance of prescriptions (e.g., the U.K.),” she said.

“As a result, the capacity that had been planned from the LPs looks to now greatly dwarf the current global demand.”

All three companies were downgraded from “market perform” to “outperform.” Cowen still has an “outperform” rating on Canopy Growth and a “market perform” rating on Cronos Group Inc.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.

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