Right now, nothing in the “regular” markets generates as much buzz as marijuana stocks. That’s not going to change any time soon, with Aurora Cannabis (NYSE:ACB) scheduled to release its third quarter of fiscal 2019 earnings results next week. As one of the leading names in the weed industry, many eyes will focus on ACB stock.
Analysts expect earnings-per-share to hit a loss of 4 cents. Individual estimates range between losses of 6 cents to 1 cent. In the year-ago quarter, Aurora stock absorbed a per-share loss of 3 cents.
On the revenue front, covering analysts forecast a consensus target of $55.3 million. However, individual estimates vary wildly, from $42.7 million to $78.5 million.
Clearly, Aurora Cannabis has an opportunity to swing ACB stock sharply in either direction. If the actual sales tally exceeds the consensus by a wide margin, I expect a large move. As several InvestorPlace writers have pointed out, marijuana stocks are emotional investments. Q3 is going to make some very happy, while others will be incredibly miserable.
But which way will the dice roll for Aurora stock? Here are three factors to consider ahead of Q3 earnings:
Medical Cannabis Boosts Profile for ACB Stock
If you ever get a chance to sit down with Aurora’s management team, chances are, they’ll tell you this: ACB stock is first and foremost a medical-marijuana investment. The recreational stuff, while generating headlines, is secondary.
Indeed, you don’t have to sit down with any executive to recognize their ultimate goal. Just look at their acquisition history. Earlier this year, Aurora bought out Whistler Medical Marijuana. At first, the deal didn’t make sense because of the acquired company’s modest cannabis-product output.
However, it was the intellectual property that attracted ACB. To be competitive against other marijuana stocks, you can’t just focus on quantity. Instead, you’ve got to produce effective strains that address common ailments. In that regard, few organizations could touch Whistler.
Not only that, the focus toward the medical component should strongly benefit Aurora stock longer term. Attitudes regarding cannabis as therapy have changed dramatically over the years. So much so that today, you’re more likely to find a senior citizen as a regular dispensary customer.
More importantly, young Americans overwhelmingly support full legalization. But for now, medical marijuana cuts the widest path possible. Therefore, look for ACB stock to jump if their medical-based revenues demonstrate significant growth.
Canadian Supply-Chain Issues a Surprising Tailwind for Marijuana Stocks
Naturally, every sector attracts naysayers, with marijuana stocks receiving a lion’s share of criticism. But just as the bullishness in weed is incredibly emotional, so too is the bearishness.
If you talk about Aurora stock or any of its rivals, invariably, the topic of Canadian supply-chain issues arises. Despite the fact that Canada became the first G7 member state to fully legalize weed, its operational facilitation has left much to be desired. In fact, you could call the situation a steaming pile of a mess.
For example, during its last earnings report, Hexo (NYSEAMERICAN:HEXO) produced about 10,800 pounds of dried cannabis. However, they only sold about 5,900 pounds, driving up inventory. Look around the Canadian sector and you’ll see similar stories: lots of production, but comparatively few sales.
Why? Hexo CEO Sebastien St. Louis mentioned a “disconnect” between cultivators and licensed producers. Essentially, “weedpreneurs” underestimated the fulfillment processes necessary to push their product.
But is that necessarily a bad thing? What these “issues” indicate is that demand overwhelmed the physical ability to feed it. While that speaks to operational inefficiencies and opportunity costs, these are good problems to have.
The alternative — smooth operations due to slow demand — is much worse.
Aurora Stock Designed for the Global Game
Bearish focus on Canada detracts from a key development among marijuana stocks: The weed market isn’t just about North America, but rather, the world.
Of course, we’ve all heard stories about Amsterdam and other liberal European locales. But cannabis — particularly the medical variety — has gained substantial traction in other, surprising parts of the world.
Late last year, South Korea made waves when they approved marijuana for medicinal purposes. This wasn’t just a publicity stunt as they laid the foundation earlier this year for weed importation. If you told me about this just a few years ago, I wouldn’t have believed it: South Korea, like many other East Asian countries, have draconian laws against narcotics.
Then again, attitudes are shifting. If older, more conservative Americans can open their eyes to marijuana, it’s not inconceivable that other people will follow suit. Thus, look for evidence of growing traction in Aurora’s international sales. If apparent, it could skyrocket ACB stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.