Aurora Cannabis Stock: 3 Reasons Not to Buy Into the Hype

Aurora Cannabis is a risky investment thanks to these three potential headwinds

Aurora Cannabis (NASDAQ:ACB) is one of the most popular cannabis stocks on the market right now. Analysts are pretty evenly split when it comes to the stock. About half are in favor of ACB stock while the rest are more hesitant to jump on board. 

Aurora Cannabis Stock: 3 Reasons Not to Buy Into the Hype

This week, the company’s shares fell after a Piper Jaffray’s analyst shared a more bearish view on the company. The analyst initiated Aurora Cannabis stock with a neutral rating. In comparison, the same analyst gave buy or outperform ratings to five other cannabis stocks. 

In a previous article, I wrote that ACB stock has potential but is a risky stock to invest in due to a number of headwinds. Listed below are three reasons I still stand by that assertion.

Aurora Can’t Justify Its High Valuation

Aurora Cannabis leads the market when it comes to production and capacity. The company has more facilities than any other cannabis company. According to recent projections, the company should produce between 25,000 and 30,000 kilos during the fourth quarter. 

But there are still too many unknowns when it comes to Aurora. The odds are likely that cannabis will be in oversupply in Canada and the company’s plans to enter new markets are tenuous at best. 

Last January, the company stated that it has “extensive” plans for entering the U.S. market with its hemp-derived CBD products. But Aurora has yet to reveal these plans or take any concrete steps toward entering the U.S. or Europe. 

The Cannabis Industry Is Still in Its Infancy

Last month, shares of Aurora, Canopy Growth (NASDAQ:CGC), and Cronos Group (NASDAQ:CRON) fell substantially. This is due to a regulatory scandal involving CannTrust Holdings (NASDAQ:CTST). The company illegally grew cannabis in unlicensed rooms.

The company is currently being regulated and will likely face disciplinary measures from Health Canada. And earlier this week, Bloomberg reported that a second CannTrust facility was found non-compliant. 

Of course, this doesn’t directly involve ACB stock. But it reflects on the newness of the cannabis market and the growing pains it will continue to go through.

Aurora Cannabis Continues to Lose Money

Earlier this month, the company released preliminary fourth-quarter revenue figures. These anticipated results showed the company’s fourth-quarter net revenue falling between CA$100 million and CA$107 million, the majority from cannabis sales. 

Aurora Cannabis reported revenue of CA$65 million during the third quarter, so if these numbers come to fruition, it will be a substantial improvement for the company. It may still end up falling short of analyst estimates, but these projections have been all over the place. 

It’s good to see that the company’s margins are improving but odds are, Aurora Cannabis still lost money during the fiscal fourth quarter. The company still doesn’t have a clear path toward profitability and that will continue to hold it back. 

As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities. 

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