Just a few giants still dominate the emerging cannabis industry, so it’s always news when one reports earnings. Number two by market cap is Aurora Cannabis (NYSE:ACB) stock, which dropped roughly 9.5% today on last night’s quarterly results. But there’s a lot more to this story behind the headlines – and a major upside catalyst on the horizon. So let’s take a look.
The sell-off tells me that investors reacted to analyst expectations and not reality. Wall Street had been looking for roughly 103 million Canadian dollars in revenues, and Aurora turned in C$98.9 million.
Now, first of all, only a handful of analysts follow ACB stock at this point, so it’s hard to extrapolate anything meaningful from that. Today had nearly 25 million shares changing hands based on, like, five guys’ opinions.
Secondly, keep in mind that Aurora’s revenues are growing faster than you’ll see with almost any other industry.
Specifically, in this latest quarter (fiscal Q4 2019), Aurora’s C$98.9 million was a 52% increase from fiscal Q3 2019 revenues of C$65.1 million. When you look at the year-ago quarter, that’s a 72% increase (from C$55.2 million). And when you look at the same quarter two years ago, that’s a 447% increase (from C$18.1 million).
And then you’ve got to look at future projections. In the chart below you see that the trend is still strong. For 2020, we’re looking at potentially $521 million in annual revenues – more than double where we are now. And by 2022, Aurora Cannabis is projected to be a $1.7 billion company by revenue. That’s just three years from now. (And that’s U.S. dollars, not Canadian.)
So for Aurora to miss by C$4 million … that’s a drop in the bucket. Especially when you look at the bigger trend.
Now, I mention this not to prove my commitment to ACB stock or really any particular cannabis company. I mention it to illustrate that the sellers today are falling into a trap that we at Investment Opportunities avoid:
…namely, getting caught up in short-term thinking for what should be a long-term play.
And the sellers are about to miss out on what could be a major bullish event.
Get Ready for “Legalization 2.0”
Now is a particularly bad time to be selling Canadian pot stocks. Because “Legalization 2.0” is about to hit.
Next month, on October 17, companies can apply for a license from Health Canada to sell cannabis edibles, beverages, and vaping products, as well as extracts and topicals. Then, 60 days later – in December – these products will actually hit the store shelves.
A year into full legalization, Canada has over 200 licensed growers and sellers of the marijuana flower – for a country of less than 40 million people. If the cannabis giants want to stay dominant, there’s a big opportunity among edibles and vapes in particular. These products have higher profit margins than the flower – as high as 92%. What’s more, they open the doors to a deeper pool of customers… including folks more likely to use cannabis if they can do so more discreetly, without the smoke.
And this is clearly on executives’ minds. Aurora Cannabis already warned in May that it would be building up inventory, preparing to release edibles, vapes, and concentrates – and that, in fact, this buildup may hold back revenues a bit for this latest quarter.
Aurora’s strategy here is telling. The company has made it pretty clear that this specific product line-up takes the “U.S. consumer” into account. And when you look at the numbers, it’s obvious why.
Canada is Just The Beginning
The California marijuana market alone is bigger than all of Canada… and it’s growing. If and when U.S. legalization occurs, the United States will immediately become the largest market in the world. In fact, it will be bigger than the rest of the world combined.
I expect federal legalization very soon – and again, you need to be invested well BEFORE a big catalyst hits.
And aside from legalization nationwide, U.S. stocks are already the best buying opportunity in marijuana.
At Investment Opportunities, we were able to ride Canadian stocks like Canopy Growth (NYSE:CGC) much of the way higher, which I’m quite proud of. But a lot of attractive U.S. stocks are both undervalued and still in “penny stock” territory.
Penny stocks often get a bad rap. But they are actually critical to the global marketplace. The world NEEDS tiny companies — just as much as bigger ones. They’re the job creators. The innovators.
You just want to be VERY choosy about which ones you buy.
I use strict guidelines to pick penny stocks — and I tell you all about them in this free presentation.
You’ll see my five-step evaluation process for early investments, including in the marijuana market. Then you’ll see how to get a free copy of America’s Top 4 Marijuana Moonshot Stocks… I’ll even give you a fifth bonus name just for fun. Click here to watch now.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now.