Aurora Cannabis (NYSE:ACB) reports its Q1 2020 earnings on Nov. 11. As a result of analyst downgrades and a generally dour view of the cannabis sector at the moment, ACB stock remains a falling knife best avoided until the company and industry can provide better news.
If you are willing to hold for 3-5 years, I don’t believe buying ACB stock at current prices presents too much downside for the long-term investor.
Park Your Money in This ETF
For those who want to go long Aurora but are worried about getting burnt by individual marijuana stocks, parking your money in the ETFMG Alternative Harvest ETF (NYSEARCA:MJ) is a wise move.
With cannabis stocks trending lower, you are still likely to see some temporary paper losses from owning MJ. However, you’re not exposing yourself to the company-specific risk that Aurora still presents.
In June 2018, I suggested that marijuana ETFs such as MJ are much safer to own than individual stocks, at least until the industry sorts itself out. More than a year later, I still feel it’s a good Plan B.
“It’s possible that Aurora will become the most valuable public company in the world surpassing Amazon (NASDAQ:AMZN) and the rest of the big hitters, but it’s not probable,” I wrote on June 6, 2018.
“By investing in marijuana ETFs you’ve decided to diversify your bet understanding the difference between possible and probable. There wouldn’t be marijuana ETFs if a large portion of investors didn’t think this way. By playing it a little safer, you’re doing the right thing.”
Consider the returns of MJ’s top five holdings, which includes Aurora.
ETFMG Alternative Harvest ETF’s Top 5 Holdings
| Stock | 1-Year Return | 1-Year Return Relative to MJ |
| GW Pharmaceuticals (NASDAQ:GWPH) | 37.7% | 57.6% |
| Canopy Growth (NYSE:CGC) | -23.5% | -3.6% |
| Cronos Group (NASDAQ:CRON) | -19.4% | 0.5% |
| Aurora Cannabis | -27.4% | -7.5% |
| Tilray (NASDAQ:TLRY) | -68.6% | -48.7% |
| ETFMG Alternative Harvest ETF | -19.9% | N/A |
Except for GW Pharma, a stock I like, which isn’t a producer of cannabis, but rather a user of cannabis to create drugs meant to treat specific forms of epilepsy, you would have been better off buying the ETF last October than focusing on one or two of the four cannabis producers listed above.
Why Not Cash?
Although it’s tempting to leave the money in cash until cannabis stocks go on a bit of a run, market timing is never the best solution because you’re always going to be late to the party.
As the saying goes, “It’s not timing the market that wins; it’s the time in the market that does.”
I don’t have a crystal ball that tells me when a stock is going to zoom higher. All I know is that the cream usually rises to the top.
If you’re thinking about buying Aurora stock, you might want to buy the MJ ETF with the allotted amount of money you were contemplating putting toward ACB until sometime in 2020.
How will you know when in 2020?
You’ll know.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
