If you take a look at a recent chart for Aurora Cannabis (NYSE:ACB), it actually looks like what happened with the dot-coms during 2000-2001 – that is, an ugly grinding bear move. It’s one of those things that seem to have no end, shaking just about everyone’s confidence.Of course, with the dot-coms, there were some huge opportunities as seen with Amazon (NASDAQ:AMZN) and Booking Holdings (NASDAQ:BKNG), formerly known as Priceline.
So then, with Aurora Cannabis, might we be seeing something similar? Could this be the time to make a buy? Or, could this be more like a situation of eToys or Pets.com?
Well, I’m in the optimist camp.
True, this is not to ignore the nagging problems. And yes, they are considerable. The legalization of cannabis in the Canadian market has not lived up to the lofty expectations (again, this is a parallel to the dot-com glory days). Keep in mind that governmental authorities have been agonizingly slow, especially with licensing of retail outlets. To make up for this, black market activities have become a major factor.
As for Aurora Cannabis in particular, the company has had some of its own self-inflicted wounds. Let’s face it: management has been too aggressive with its spending. It also looks like it has missed opportunities to strike strategic financings.
However, while all these are serious problems, the markets have been factoring all this into Aurora’s stock price. The result is that the market cap is a much more palatable $2.6 billion, which is not bad for a premier company in the space.
Even with the challenges in the Canadian market, it is still a nice source of growth. In the latest quarter, revenues for Aurora spiked by nearly 140% to $22.4 million. The company also has a decent amount of cash in the bank at $316 million.
But next year there will be another catalyst for growth in the Canadian market – that is, Cannabis 2.0. This is when it will be legal to sell hemp-based edibles.
Now the predictions are wide, with some estimates at over $2 billion. But even if it is half this, it should provide a nice opportunity for Aurora.
The company is prepared for this, having invested in offerings like vapes, gummies, chocolates, mints, cookies and so on. There should also be help from Aurora’s strategic advisor, Nelson Peltz, who is one of the world’s top investors for consumer stocks. Some of his positions are in companies like Procter & Gamble (NYSE:PG), Mondelez (NASDAQ:MDLZ), and Wendy’s (NASDAQ:WEN).
It also should be noted that Aurora is not just in the recreational cannabis space. The company actually has a diverse platform, which should help it deal better with market conditions. For example, Aurora has been able to build a strong medical business, with more than 40 researchers who have conducted a long list of clinical trials and case studies. The company currently serves about 84,000 patients and has a global platform that which reaches about 25 countries.
Bottom Line on Aurora Stock
On the latest earnings call, Aurora CEO Cam Battley had this to say: “The past few months have been challenging for the broader cannabis industry, between issues of governance, evolving consumer demand, and provincial retail bottlenecks. There’s been no shortage of negative news. That said, I want to reiterate that our view of the opportunity in the Canadian and global cannabis industry is still extremely robust.”
I think he is spot-on. Taking the long view of things is the way to approach companies like Aurora. This means there will continue to be lots of stomach-churning volatility. But we are still in the early days with cannabis – and more importantly, Aurora is positioned 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.