With the markets near all-time highs, there has been a nice rally in cannabis stocks, but Aurora Cannabis (NYSE:ACB) seems to have missed the memo. ACB stock has been languishing.
During the past couple weeks, Tilray (NASDAQ:TLRY) has logged a return of 32% while Cronos Group (NASDAQ:CRON) is up about 17% and Canopy Growth (NYSE:CGC) has gained 11%.
Unfortunately, ACB stock has been in an extended downtrend, going from $10 in March to $7.48.
For the year so far Aurora Cannabis stock is still up an impressive 43%. When it comes to cannabis stocks, there is usually quite a bit of volatility and this is not likely to change any time soon.
The Pros And Cons of ACB Stock
The bearishness with ACB has been the result of various factors. Although, perhaps the most important is the string of disappointing earnings reports. Note that the Canadian market has proven more difficult with the transitional to legalized marijuana. There have been challenges with the supply chain and retail expansion. What’s more, black market sources have remained a persistent issue.
But hey, such growing pains should be no surprise. If anything, the recent weakness does make ACB stock look relatively attractive. Consider that the consensus price target is $14.27, which implies 91% upside from current levels.
So what are some of the catalysts to get ACB stock back on track? Well, first of all, the company is a top producer in the Canadian market. During the latest quarter, the production nearly doubled to 15,000 kilograms. But with the acquisition of MedReleaf and a myriad of other investments, the potential annual capacity is a hefty 570,000 kilograms.
The early experience in the Canadian market is crucial. Aurora is building a solid infrastructure, which will allow for economies of scale. This make it so the company can better compete as cannabis becomes more commoditized in the Canadian market. In fact, Aurora is already becoming a streamlined low-cost provider.
But another key – especially for the long haul – is the medical business. The pipeline includes 40 in-process and completed clinical trials and case studies. There has also been continued growth in the patient base, which grew by 5% in 77,136 in the latest quarter.
Other Opportunities for ACB Stock
Another important development is a recent partnership with the Ultimate Fighting Championship (UFC), which is the world’s largest martial arts organization. The agreement calls for an exclusive multi-year focus on clinical research using Cannabidiol (CBD), which is the compound in the cannabis sativa plant that does not produce a high. In other words, there is much potential for breakthroughs with new treatments.
With the passage of the Farm bill, the CBD opportunity in the US looks promising and should be a strong catalyst for growth. During the latest earnings call, Aurora chief corporate officer
Cam Battley had the following to say:
“We are well positioned to pursue multiple angles through our deep research and product development capabilities, our regulatory expertise as well as our extensive global hemp infrastructure which we intend to expand through acquiring the shares in HempCo, not already owned by Aurora. CBD for both medical and wellness applications has incredible potential and we intend to fully leverage our capabilities, our infrastructure and our partnership potential to maximize shareholder value creation.”
Bottom Line on ACB Stock
In mid-May, Aurora brought on board as a strategic advisor Nelson Peltz, who is the CEO of Trian Fund Management. He has decades of experience with consumer markets, with investments in companies like PepsiCo (NASDAQ:PEP), Keurig Dr Pepper (NYSE:KDP), Procter & Gamble (NYSE:PG) and Mondelez (NASDAQ:MDLZ).
Peltz’s involvement is a strong validator. He should also be essential in finding strategic partners.
Of course, even with the advantages, ACB stock still has lots of risks. But for investors looking for an interesting cannabis play, this one definitely is worth considering.
Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
