The past six months have gone from bad to worse for Canadian cannabis producer Aurora Cannabis (NYSE:ACB). In just a few short months, Aurora Cannabis stock has shed nearly 70% of its value as both the industry and the firm itself faced severe headwinds.
Despite being a popular pick among millennial investors this summer, ACB stock has been on a downward trajectory. Even worse, it looks unlikely to reverse anytime soon.
Aurora Cannabis Stock Downgrade
A big part of the reason why the ACB stock price has floundered is due to negative analyst commentary. Most recently, Stifle Nicolaus analyst Andrew Carter gave the stock a “sell” rating with a $5 price target. That’s a whopping 30% lower than where the stock is trading today. That’s including the massive decline over the past six months.
Carter pointed to the firm’s dismal fourth-quarter results. He noted that this is just the beginning of a larger, more concerning story. Carter believes the firm will soon be coming to capital markets, looking for more cash to fund future growth plans.
The trouble with that is investors aren’t exactly keen on the marijuana industry right now. And that’s reflected in the prices of cannabis stocks across the board. Simply put, the uncertainty about the Canadian recreational market coupled with worries about the industry’s future as new regulations are proposed has made investing here risky.
With the current macroeconomic environment and a skittish market on the table as well, investors are putting their money elsewhere.
Future Looks Bleak
But even if they were looking to take on a little risk and dip their toe in the marijuana market, Aurora Cannabis stock is likely the last place they’d want to put their money. As I highlighted last month, ACB hasn’t given investors much to go on when it comes to future growth prospects.
So far, the firm hasn’t given any indication about its plans to enter the CBD market. That’s a huge growth opportunity that isn’t marred with as many regulatory challenges as the recreational cannabis industry is.
Even more importantly, though, is the fact that ACB doesn’t have any commercial partners to help it grow in the retail space. This is a big deal for a few reasons.
First, in order for pot products to gain momentum, they need money and reach. Big brands like Molson Coors (NYSE:TAP) and Constellation Brands (NYSE:STZ) have been inking deals with cannabis companies to bring their products to market. However, ACB hasn’t buddied up. That added safety simply isn’t there for ACB investors.
Not only that, the fact that no big-name brands have cozied up to ACB should raise some major red flags. The company even brought on Nelson Peltz as a strategic advisor in order to help the firm find a strategic partner. It’s worrying that six months later, there’s been no movement in that department.
Time is Running Out for ACB
It’s hard to find any upside in Aurora Cannabis stock right now. As the industry comes under pressure, competition will heat up. Plus, ACB’s better-funded, more exposed rivals will likely come out on top. Unfortunately, Aurora appears to have missed that boat. As the firm starts searching for ways to fund its future, it will likely struggle to find investors willing to take that risk.
The Bottom Line
Normally, I love a turnaround story. And I truly believe that following Warren Buffett’s advice to be fearful when the market is greedy and greedy when the market is fearful is hands down the best way to make investment decisions.
However, I think the worry surrounding ACB stock right now is well founded. Not only is the company in a precarious position during a turbulent time for the pot industry, but its balance sheet is on shaky ground as well.
The firm has paid a staggering amount for its acquisitions over the past few years. Those investments have yet to prove their worth. I’d stay well away from Aurora Cannabis stock for the foreseeable future unless the company makes a drastic about-face over the next few months.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
