Boom and bust cycles can easily last a few years. A classic case is the dot-com cycle, when lasted from 1998 to 2000, giving investors time to snag juicy returns.
But cannabis stocks have been different. Their boom-bust cycle only lasted a year or so. And it is far from clear if marijuana stocks have bottomed.
The silver lining is that the valuations of marijuana stocks have become much more attractive, while their growth outlook appears to be intact.
There are a variety of high-quality marijuana stocks that investors can consider buying. But let’s take a look at one: Aurora Cannabis (NYSE:ACB).
Granted, the chart of ACB stock is downright scary. During the past year, Aurora Cannabis stock has gone from $12 to $3.77.
While the valuation of ACB stock is still far from cheap, its growth remains particularly strong. Ultimately, that should lead to higher margins and profits, which will make Aurora stock more attractive.
The Pros of ACB Stock
Aurora has operations across 25 countries on five continents. Besides a thriving consumer business, ACB also has an extensive medical operation, as it employs more than 40 highly educated researchers, and has conducted a long list of clinical trials and case studies. What’s more, the company is making a big play for the CBD-based wellness category, which is likely to become a multi-billion dollar business in the US.
The Cons of ACB Stock
It’s true that ACB stock is facing a great deal of risk. The Canadian cannabis market has been beset with difficulties, as its supply chain has been problematic and it’s been hurt by the continuing strength of the black market. Additionally, Hexo’s (NYSE:HEXO) negative earnings preannouncement was a sign that the cannabis sector’s growth may be decelerating.
Moreover, vaping may have caused a number of deaths. While the ultimate cause of the deaths is unclear, they have damaged the cannabis industry’s image.
The Bottom Line on Aurora Cannabis Stock
All in all, these are serious problems, and it will take some time to deal with them. But then again, Wall Street has been factoring all this into ACB stock. So even a small amount of good news could easily spark a rally by Aurora stock.
But it’s important to keep in mind that there are some potential catalysts that can help get ACB stock back on track. One is Cannabis 2.0. This refers to the legalization of CBD edibles, topicals and beverages in Canada. According to Deloitte, those products could generate $2.7 billion of revenue.
Next, ACB has a top-notch strategic advisor, the legendary Nelson Peltz. He runs an activist investment fund and has taken positions in companies like Procter & Gamble (NYSE:PG), Mondelez (NASDAQ:MDLZ), and Wendy’s (NASDAQ:WEN). No doubt, he’ll be able to leverage his own network to identify strategic partners and investors.
Granted, despite all this, ACB stock will likely remain volatile. So it’s probably best to refrain from buying too many shares of Aurora stock initially. But in the long-term, ACB does look like it has what it takes to be a winner.
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.