Aurora Cannabis (OTCMKTS:ACBFF) just announced that it applied to list on the New York Stock Exchange. The Edmonton, Alberta-based medical marijuana firm would follow its peer Canopy Growth (NYSE:CGC) in switching to the NYSE. With the company more open to U.S. investors and legalization in Canada, ACBFF stock could see a short-term bump. However, the longer-term outlook might call for more caution.
NYSE Listing Will Help ACBFF Stock in the Short Term
Aurora becomes the latest Canadian cannabis company to apply to trade on a major U.S. exchange. After it gains regulatory approvals, the company expects Aurora to have its NYSE listing before the end of October. After the success of Tilray (NASDAQ:TLRY), and to a lesser extent, Canopy, it has become clear that the NYSE and the Nasdaq pave the way to a higher stock price, at least for now.
Aurora also benefits from a unique but favorable legal environment. Because Canada has moved ahead of most other countries in legalizing cannabis, Canadian firms have enjoyed the most success.
The U.S. suffers from a paradoxical situation of weed enjoying legal status in some states while the federal government classifies it as a Schedule I drug. The Schedule I status effectively hamstrings the growth of American companies, giving their Canadian peers an advantage.
In addition to the NYSE listing, I like the strategic moves ACBFF has made. Despite their smaller size, they likely produce more cannabis than any other Canadian company. They also focus on medical pot. This remains critical as medical-grade marijuana commands higher prices.
They also have sought out customers in foreign countries. This will bolster the company in case regulatory hurdles slow sales at home after weed becomes legal.
Aurora Stock Faces Longer-Term Challenges
Still, looking beyond the NYSE bump, I see some concerns that could make investors paranoid, whether or not they use Aurora’s products.
If one applies strict standards on valuation, virtually no Canadian marijuana stock stands as a buy. Still, even assuming buyers will overpay, I see other equities in this sector as safer bets.
Analysts expect the company will begin to earn an annual profit starting in the next fiscal year. However, the stock trades at over 80 times fiscal 2020 earnings. The fact that the stock trades at 115 times sales should also give investors pause.
Aurora looks cheap compared to Tilray. Still, it fares less well compared to other peers. Aphria (OTCMKTS:APHQF) already earns a profit. Aphria’s current price-to-earnings (P/E) ratio stands at just under 100. However, It also trades at about 30 times next year’s earnings. I also expect Aphria will list on a U.S. exchange soon.
Canopy also offers some advantages. At over 138 times sales, it trades at a higher multiple than ACBFF. However, Canopy holds a relatively strong cash position. It also enjoys the backing of Constellation Brands (NYSE:STZ). With its latest $4 billion investment, STZ now owns 38% of Canopy. This position gives Canopy built-in stability.
That said, I believe in Aurora as a company. Its productive capacity and medical focus will keep the company strongly positioned. Also, at some point, a shakeout will occur, and the industry will consolidate. Aurora will likely survive that phase. However, that does not make ACBFF a buy here. Despite the company’s position, I recommend not holding ACBFF stock for long after it moves to the NYSE.
Final Thoughts on ACBFF
An NYSE listing, as well as legal sales in Canada, should give Aurora stock a short-term bump. Both Tilray and Canopy have shown that the U.S. listing brings new investors to their stock. As such, the news of ACBFF moving to the NYSE should boost the equity for now. Aurora and its peers benefit from a unique position in the market. As such, they all command high valuations. Aurora also enjoys perks related to both its medical focus and its production capacity.
Unfortunately for investors, none relate directly to the value of ACBFF stock. Both the NYSE listing and legalization in Canada will help Aurora in the short term. However, looking beyond that, I believe Canopy or Aphria stock offer better value propositions.
As of this writing, Will Healy is long APHQF stock. You can follow Will on Twitter at @HealyWriting.