Canada’s Aurora Cannabis Inc. (NYSE:ACB) crept up half a percent on July 30, but its trend since March remains downward. Since almost touching the $10 mark in mid-March, ACB stock has slumped over 37%. At $5.98, it’s now in territory last seen in January. The big question is whether Aurora stock has further to fall, or if now is the time to invest in the world’s second-largest cannabis producer?
Aurora Cannabis Investors Are Nervous
Aurora Cannabis Inc is expected to report its Q4 earnings on September 24, and investors are clearly a little nervous about what they’re going to hear.
When the company reported its Q3 earnings in May, the results were mixed. The company reported a big operating loss of $158 million (Canadian). That’s despite generating annual revenue growth of 367% year-over-year. There are concerns that Aurora is having trouble reigning in its operating expenses, and that the Canadian market for recreational marijuana may be softer than anticipated. ACB stock got a quick pop in the days immediately after its Q3 earnings were released, then resumed the downward slide.
The Bullish Case on ACB Stock
Aurora Cannabis Inc has been carefully putting the pieces in place to become a powerhouse producer of medical and recreational marijuana in the U.S., Canada — and the world.
Since 2016, Aurora has made 16 strategic acquisitions. That has helped it to expand its operations globally so that it now has 15 production facilities worldwide and is active in 25 countries. It’s a leader in the medical marijuana market, and a giant in the expanding recreational market. While the company currently produces in the neighborhood of 150,000 kg of marijuana annually, it will have the capacity to ramp that up to 625,000 kg by 2020.
The focus of the owners of ACB stock lately has been on the U.S. and Canadian recreational marijuana markets, but investors have been more interested in Canada, where recreational pot was legalized last October.
Aurora Cannabis Inc. has positioned itself to be a big player in North America, but it has unparalleled global reach. The global cannabis market is expected to be worth $66.3 billion by 2025. Having a global presence is also an advantage for Aurora in terms of inventory management, with the potential, depending on regulators’ actions, to divert product from regions where there is a surplus or low prices to more lucrative markets.
Aurora has begun stockpiling marijuana in order to ramp up production of cannabis edibles. That move may have hurt ACB stock in the short-term because it has forced the company to hold back product that could be sold, cutting into its revenue in the short-term. But the payback could be significant for ACB stock. Canada is expected to legalize cannabis edibles in October, and when they’re cleared to hit retailers’ shelves, Aurora Cannabis Inc. is going to sell many edible products.
And with the market for cannabis infused products estimated to be worth $2.7 billion in Canada alone, that will be a significant prize for Aurora. Lower than expected first-year recreational marijuana sales in Canada have hit ACB stock, along with the shares of other leading producers. Canopy Growth (NYSE:CGC) — by far the largest of the cannabis stocks — has seen its value drop by 32% in the past six months. When edibles go on sale in Canada, investors may become more confident about marijuana stocks.
Should Aurora Stock Be Bought on Weakness?
At $5.98, ACB stock is at its lowest point since mid-January, and trading at nearly half the $11.68 it hit in October, just days before recreational cannabis was legalized in Canada. ACB stock is rated a “buy” by eight of 15 analysts polled by the Wall Street Journal (five rate it a “hold”), with an average target price of $13.02. Will ACB stock go any lower? It’s possible, especially if its Q4 earnings disappoint investors, but Aurora stock is definitely in “buy” territory for investors who want in on the cannabis market.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.