Perhaps the worst is finally over for the marijuana stocks. The ETFMG Alternative Harvest (NYSEARCA:MJ) marijuana ETF has rallied 10% off the lows in recent days, and some names like Aphria (NYSE:APHA) have bounced even more. The good cheer hasn’t reached Aurora Cannabis (NYSE:ACB), however. ACB stock remains within striking range of its 52-week low.
Will the next move for ACB stock be a recovery, as the marijuana sector tries to find some support heading into the holidays? Or will Aurora manage to fall to even further lows?
To answer that question, it’s worth looking at Aurora’s plans going forward. The company, unlike many others, remains aggressive and has a lot in play that could potentially cause revenues to surge in 2020. So far, the market hasn’t been convinced, and traders have continued to dump ACB stock. Is that the right reaction?
Aurora Has Great Growth Initiatives
Both analysts and investors have expressed concern about Aurora’s global plans. The company is building massive new grow facilities in both Canada and Denmark that come at quite an upfront cost. Once they are completed, Aurora envisions having the best and lowest-cost production capacity with its “Sky Class” facilities.
The good news, for investors, is that both sites are well-advanced in construction, and costs to build them should diminish in coming quarters. That’s good news, as Aurora is starting to run down its treasury. Management thinks the wait will be worth it.
In Canada, edibles are coming online within the next couple of months, unlocking a hopefully large new market. Aurora has a ton of products like chocolates ready to go for that, and the company has a plan to get into the vaping category in a big way as well.
Look around Aurora’s investor relations and you see a ton of informative blog posts and videos showing exactly how they intend to drive revenue growth in 2020.
Oversupply and Aurora Stock
I give credit to Aurora’s management team. In a time when so many marijuana companies are obviously struggling, and many have run into scandal or regulatory problems, Aurora has remained transparent. They are letting investors know what’s happening and giving stakeholders a clear path forward.
That said, Aurora’s public relations efforts have primarily focused on showing all the new products and initiatives Aurora has in place. This is a good step, but it would be helpful if the company addressed the massive oversupply. On the last conference call, CEO Terry Smith noted that the company may delay some growth initiatives to wait for demand to pick up.
However, the company hasn’t shown a firm plan to manage its capital given the demand shortfall. Addressing the demand subject, on the last conference call, the company suggested that discriminating consumers picking more expensive higher-priced products could help make up the gap.
So far though, judging by Aurora’s operating results and sinking stock price, this hasn’t been enough to make a major difference.
There’s also the tricky matter that Aurora has prioritized its vaping line of products. In fact, according to the CEO, as of last quarter, Aurora was first to market in Canada to market legal vaping cartridges. This is a huge potential market, but as we’ve seen lately, there are a number of health concerns around vaping, with some evidence tying it to THC vaping in particular.
Now, to be fair, it seems plausible that the real issue here is with consumers using illicit products that are not up to par with regulatory standards. I’m generally bullish on vaping stocks now.
As I argued, more regulation will eventually help the entrenched market leaders while keeping competition out. For marijuana vaping, particularly in Canada, Aurora has a good shot at becoming that dominant player.
Still, the current issues around vaping and Juul’s decision to pull back on its product offerings could serve as a hindrance to Aurora’s 2020 revenue growth plans. Don’t be surprised if ACB stock falls in the short run if the company slows down vaping efforts.
ACB Stock Verdict
If you’re looking to make a speculative bet on marijuana turning around, ACB stock isn’t a terrible choice. The company hasn’t gotten hit with the sort of scandals or regulatory problems that have whacked rivals.
Management remains committed to an understandable growth strategy, and the company has enough scale to be a major player during this industry slump. Marijuana stocks have started to bounce back, and Aurora Cannabis stock could be in line to catch-up and head back toward the $5 mark.
That said, know that Aurora, and most of the other marijuana stocks, are a gamble here. Until industry supply and demand gets back in balance, these companies are likely to continue losing lots of money.
The black market, as I noted, is a major threat to Aurora, Canopy Growth (NYSE:CGC) and other leading firms. Vaping and edibles may give Aurora a path to a better 2020 but plan on the stock remaining a bumpy ride.
At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.