With the euphoria on cannabis stocks on pause, even positive news for companies like Aurora Cannabis (NYSE:ACB) is not helping. ACB stock is down by 4.6% on the week and 20% in the last month.
The downtrend started after Aurora stock topped $10 in mid-March. At this rate, it could close at its yearly low in one or two months. Still, Aurora is a Canadian cannabis firm that is carrying out its international growth ambitions.
On July 18, Aurora announced that the Italian government awarded it as the only winner in a public tender to supply medical cannabis in Italy. The contract should be signed in September 2019. Five companies participated but the government disqualified them. They did not meet the stringent requirements of the tender.
Chart: New Frontier Data
Aurora will supply 400 kg of medical cannabis over a two-year contract. The company may conceivably achieve production costs at below $1 per gram, although this is a long-term goal. ASP (average selling price) may be in the range of $5.86 – $11.01, implying profits of between $4.86 – $10.01 per gram. This excludes related SG&A, R&D, and other operating costs. In Q3/2019, Aurora’s average net selling price of dried cannabis was $5.86, down 6% year-over-year. The ASP of cannabis extracts rose 10% Y/Y to $11.01 in the third quarter.
ACB Stock Keeps Falling
Still, since the announcement, ACB stock fell steadily from $7.00 to $6.25. Investors grew wary of cannabis stocks after Health Canada discovered CannTrust Holdings (NYSE:CTST) illegally produced cannabis. CannTrust then fired CEO Peter Aceto when it found new information that implicated him in the activity. Cronos Group (NASDAQ:CRON), is not performing well either. The company did not issue any news lately. Its first-quarter report of $6.5 million CAD in revenue and a non-GAAP EBITDA loss is the only significant update issued.
Canopy Growth (NYSE:CGC) stock is down just as much as Aurora stock in the last month, falling 20%. The company reported a fourth-quarter loss of 98 cents CAD on June 20, even though revenue tripled three-fold to $94.1 million CAD. Canopy announced its fiscal 2020 Q1 figures will be released after the market closes on Wed., Aug. 14.
Positive Developments for Aurora
On July 24, Aurora announced a joint clinical research program with the UFC mixed martial arts organization. They will produce multiple studies examining the use of hemp-derived CBD for treating pain, inflammation, wound-healing, and recovery on MMA athletes. There are no official tests for CBD treatments used by high-performance and non-professional athletes. As Aurora and UFC lead the studies, they will build awareness for hemp-derived CBD. They will educate and advocate professional athletes as a result. This activity will help not only Aurora but the CBD industry as a whole. CBD is allowed under anti-doping agencies USADA and WADA regulations. But the collaboration will give Aurora a path for potential new products for UFC athletes.
New Outdoor Research Sites
Last month, Health Canada granted Aurora Cannabis licenses for outdoor cultivation at two Canadian sites. The sites in Quebec and British Columbia will be used for cultivation research. There, Aurora will develop new technology, genetics, and intellectual property. If it succeeds, Aurora will have a high-quality outdoor production method. The Comox facility has 21,000 square feet for growing indoors, while the laboratory is 10,500 square feet. The regulator also gave Aurora a processing license in Alberta.
Your Takeaway on Aurora Cannabis Stock
Nine of the analysts who’ve set a one-year price target on Aurora Cannabis stock have an average target of $9.98. Even though the negative sentiment suggests the now ~70% upside target (per TipRanks) is not achievable, things may change.
Markets will soon forget about the CannTrust distrust. And if buyers accumulate ACB stock as it falls, the downtrend may soon end.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.