Since March, Aurora Cannabis (NYSE:ACB) has been on a steady decline, going from $10 to $5.65. But of course, ACB stock is not an outlier. The cannabis sector has been in a bearish trend, as seen with Canopy Growth (NYSE:CGC), Cronos Group (NASDAQ:CRON) and Tilray (NASDAQ:TLRY).
There are a variety of factors for this. First of all, while the legalization of marijuana in Canada has been a strong catalyst, the expectations were too exuberant. So a fall-off was a much-needed adjustment.
But there are other nagging issues. For example, the Canadian market continues to have supply chain problems as well as adverse impacts from black market activities.
OK then, so what now? Well, timing a trade in the cannabis sector is difficult. This is why it’s a good idea to average into positions. I also think it’s advisable to focus on high-quality companies. And for the most part, ACB stock is a solid choice right now.
Here’s a look at three reasons:
While there are legitimate issues with the cannabis market right now, the long-term prospects still look promising. For example, a research report from the United Nations estimates that there are about 180 million people who consume cannabis.
But this is likely to grow, especially as more and more countries pursue legalization. Another key is that cannabis has been shown to have strong therapeutic qualities.
Now there are many forecasts of the market. But they all point to strong growth. Just look at a recent report from Arcview Market Research and BDS Analytics, which pegs the compound annual growth rate at 26.7% between 2017 to 2022.
The Cannabidiol (CBD) opportunity also looks promising (this is the compound of hemp that does not produce a high). In the US, the Farm bill took this off the illegal substance list, and this should spur growth. BDS Analytics forecasts that the spending will hit $20 billion by 2024, for a compound annual growth rate of 49%.
Long-term success in the cannabis industry will likely be due to scale. This will help a company rise above the noise in the market but also deal with inevitable shifts in supply-and-demand.
As for Aurora Cannabis, it is building the right kind of platform that should be a winner. The company is already a major producer in the Canadian market and is also making inroads in other countries, such as Italy. Keep in mind that it has been at the forefront of automation of facilities, which will lead to overall lower costs.
Aurora Cannabis is also investing heavily in its medical business. Note that the pipeline has 40 in-process and completed clinical trials and case studies. In the meantime, the patient base has continued to increase, hitting 77,136 in the latest quarter.
And yes, Aurora Cannabis has been focused on the CBD opportunity. To this end, the company has struck a variety of acquisitions, including HempCo, ICC Labs, Agropro and Borela.
Nelson Peltz and ACB Stock
Unlike CGC and CRON, Aurora Cannabis does not have a major strategic investor. But this could change soon. The reason? In March, the company retained Nelson Peltz as a strategic advisor.
He is one of the world’s top activist investors, with positions in a myriad of consumers companies like Procter & Gamble (NYSE:PG), Mondelez (NASDAQ:MDLZ), and Wendy’s (NASDAQ:WEN). Given his extensive network, he should be able to find the right partner.
But of course, Peltz should also help with other matters, such as advice on marketing and strategy. All in all, his involvement is a major validation of ACB stock.
Tom Taulli is the author of the 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.