There are signs cannabis stocks have begun to bottom out. Over the last few days, the Horizons Medical Marijuana Life Sciences Index ETF (OTCMKTS:HMLSF) has rallied just under 10% off its lows. AdvisorShares Pure Cannabis ETF (NYSEARCA:YOLO) bounced 8%, as the ETFMG Alternative Harvest ETF (NYSEAMERICAN:MJ) tacked on 10%. Shares of Aphria (NYSE:APHA) bounced even more, along with Canopy Growth (NYSE:CGC) and Charlotte’s Web (OTCMKTS:CWBHF).
The only cannabis stock that has not enjoyed a similar rebound is Aurora Cannabis (NYSE:ACB). I don’t think that’ll be the case for long. In fact, with patience, I believe that ACB stock could easily rally well off double-bottom support to test $8.
ACB Stock and Fear
Over the last two years, Aurora Cannabis stock exploded 879% from a 2017 low of $1.58 to $12.53 a share. The company could do nothing wrong.
At one point, analysts were tripping over one another upgrading ACB stock as the company delivered sizable revenue growth quarter-over-quarter. Aurora brought billionaire investor Nelson Peltz on board as a strategic adviser. Peltz explored potential partnerships and ACB’s global expansion efforts. Aurora even boosted its production capacity above its rivals, as I’ve noted. Unfortunately, the company also began to over-promise and under-deliver with earnings.
Then, analysts began to pile on the downgrades.
In September 2019 for example, ACB stock was smoked by a Stifel Nicolaus downgrade to a “sell” rating. Bank of America analysts downgraded Aurora stock in June 2019 just months after initiating a “buy” recommendation on ACB.
However, the downgrades and the pullback have led to overkill. The stock is now obscenely oversold at double-bottom support. With patience, I believe this stock could triple back to $12 a share. It’s another “blood in the streets” opportunity with an industry still in its infancy.
Remember, the cannabis industry is expected to become a $22 billion industry by 2022, according to the Brightfield Group. In addition, support for legalization is exploding right along with sales estimates. A late-2018 Gallup survey found that 66% of Americans are in favor of legalization. That’s up from just 60% in 2016.
Bottom Line for ACB Stock
The short-term pain of the cannabis industry may not go away any time soon.
However, the long-term growth trajectory of this industry is well off the charts with Aurora Cannabis a likely beneficiary. Even with a recent earnings miss, Aurora is still one of the biggest cannabis producers in Canada. It also expects to produce up to 625,000 kilograms of cannabis product over the next two years. That puts Aurora Cannabis high on the list of the top cannabis companies that will be able to keep up with the demands of a sizable, growing market.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
