Last week Aurora Cannabis (NYSE:ACB) announced a deal with the Ultimate Fighting Championship (UFC), which is the world’s largest martial arts organization. It did not get much attention, but it should have. The deal is likely to be a long-term bullish driver for ACB stock.
The focus of the partnership – which is exclusive and multi-year – is on clinical research and innovation using Cannabidiol (CBD). CBD is the compound in the cannabis sativa plant that does not produce a high. Yet it has been shown to have powerful therapeutic effects.
Aurora Stock and the UFC
The deal is certainly important for UFC, which wants to find unique ways to improve the health of its athletes. Keep in mind that the organization also recently created the UFC Performance Institute, which serves the health needs of over 400 athletes, focusing on areas such as with nutrition and injury prevention.
UFC is also conducting clinical studies on therapies targeting inflammation and pain management. The joint research involving Aurora Cannabis and UFC will be part of that effort. The research will be led by Dr. Jason Dyck, a member of ACB’s board, a professor at the University of Alberta and a Canada Research Chair in Molecular Medicine.
But there is something else that’s important for Aurora stock: The UFC will bring much more visibility to CBDs. The organization has more than 300 million fans across the world, and its fights are broadcast in over 170 countries.
Regardless, the growth of the CBD market is likely to surge in coming years. One of the main drivers of the market is the passage of the Farm Bill, which removed CBD from the illegal substance list. According to the Brightfield Group, the CBD market in the U.S. could hit $22 billion by 2022. That would definitely be a strong catalyst for ACB stock.
It’s important to note that ACB has been investing in CBDs for some time. For example, the production of its Radient facility in Edmonton, Canada is supposed to ramp to 10,000 kilograms per day. The company has also been acquiring various companies in the space like Argopro (Europe’s largest hemp producer) and HempCo.
The Bottom Line on Aurora Stock
In the near-term, ACB stock should benefit from the surge of the Canadian cannabis market. And as for the long-term, Aurora stock is likely to be boosted by the company’s medical business. Last quarter, the company’s patient base rose by 5% to 77,136. ACB is also conducting or has completed 40 clinical trials and case studies.
What’s more, its overall production has remained robust, which is critical in the cannabis business. In its fiscal third quarter, the company nearly doubled its output to 15,590 kilograms.
Another positive for ACB stock is Nelson Peltz, who recently came on board as a strategic advisor. He is the CEO and founding partner of Trian Fund Management, which is a premier investment fund with a focus on consumer-product companies.
Going forward, Peltz’s skills and more importantly, his connections, should enable him to become a catalyst for ACB stock. Large companies have been willing to invest billions in the space, as Cronos (NASDAQ:CRON) and Canopy Growth (NYSE:CGC) have both benefited from such deals. In other words, Peltz should be able to line-up a similar deal for ACB, which would certainly be a positive catalyst for ACB stock.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
