Aurora Cannabis (NYSE:ACB) joined companies like Tilray (NASDAQ:TLRY), Canopy Growth (NYSE:CGC) and Cronos (NASDAQ:CRON) when its recent earnings report sent ACB stock on a 9% tumble.
Because of this, there has been a wide-scale bear move. The fact is that investors have been too optimistic about the growth prospects from Canada. There have also been issues with supply chains in the country as well as black market activities.
So when may things change? It may take a while.
But even before this, the ACB stock price had been under increasing pressure. Since March, the shares have gone from $10 to $5.70.
Now, as for the fiscal fourth-quarter earnings report for the company, there was still lots of growth. On a quarter-over-quarter basis, revenues jumped by 52%. There was also an annual 72% ramp.
Yet Wall Street wanted much more. ACB reported C$98.9 million on the top-line while the consensus was calling for C$103 million. Note that before this the company had tempered its annual guidance.
Something else about the earnings report that likely weighed on Aurora Cannabis stock was the softness in the global business. Consider that there was only a 12% increase in the medical segment in Europe to C$4.5 million.
InvestorPlace.com’s Josh Enomoto summed things up as follows:
“The cannabis market has stepped out of the honeymoon phase and into the ‘show me’ phase. In other words, investors are tired of hearing bedtime stories. Instead, they want some evidence that these tales are based on facts.”
Bad News for ACB Stock
Aurora Cannabis stock got hit again this week, off about 4%. The reason: negative commentary from Stifel Nicolaus analyst Andrew Carter. Primarily because of the earnings report, especially with the sluggishness in foreign markets, he slapped a “sell” rating on the shares. He lowered his price target from C$7 to C$5.
He also thinks the terrible sentiment in the cannabis sector will make it more difficult for Aurora Cannabis to raise more money. No doubt, this could mean that any equity offering could see substantial dilution – which could mean even further deterioration of the stock price.
An Upside for ACB Stock
Despite all the bad news, there remain silver linings. Aurora Cannabis has the advantage of scale and a global infrastructure (there are 15 production facilities, with sales and operations in 25 countries). For example, during the quarter the company produced over 29,000 kilograms, compared to 15,590 for the prior quarter.
Another advantage for Aurora Cannabis stock is that it has Nelson Peltz as a strategic advisor. He is a top activist investor who has extensive experience with consumer goods companies like Procter & Gamble (NYSE:PG), Mondelez (NASDAQ:MDLZ), and Wendy’s (NASDAQ:WEN). Peltz should be invaluable in providing high-level contacts and funding resources.
And finally, there is the catalyst of “Legalization 2.0.” This refers to when Canada will legalize the sale of cannabis edibles, beverages and vaping products. The law will require a 60-day permit process, after which sales will be allowed.
This should help to boost revenues. However, in light of the concerns with cannabis companies right now, there may not much action with Aurora Cannabis stock until next year. So for now, there is probably no rush to make a buy.
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.
