It’s no secret that 2019 wasn’t a great year for Aurora Cannabis (NYSE:ACB). ACB stock is down more than 60% from a year earlier, and its revenue took a serious hit this past year. The company also increased its debt burden to make several strategic investments.
It’s worth pointing out that many of these problems are not unique to Aurora stock. The cannabis industry as a whole struggled for most of the year due to various regulatory issues.
Cannabis has been legal in Canada since 2018, but cannabis sales actually declined this year. The industry dealt with regulatory issues and supply problems as most companies struggled to reach profitability.
ACB stock is undoubtedly an analyst favorite when it comes to Canadian cannabis companies. So could the company turn things around in 2020? Here are three things to consider as we head into the New Year.
The Retail Environment Improvements
Previously, Ontario had a cap on the number of privately owned cannabis stores allowed in the region. But in early December, the government of Ontario announced it’s getting rid of this cap and plans to expand the number of retail cannabis stores available.
Of course, retail cannabis stores will have to comply with all rules and regulations. And each licensed cannabis company is limited to no more than 10 stores until Aug. 31, 2020. But this is still great news for Aurora and the cannabis industry as a whole.
Cannabis Derivatives and ACB Stock
Canada approved its second round of legalizations in October. Cannabis derivatives, which include beverages, extracts, and vape pens, which start hitting the shelves this month.
According to Deloitte, the edibles and beverages market alone should start generating a significant amount of revenue for companies like Aurora. The market for cannabis edibles and alternative products is estimated to be worth CAD$2.7 billion annually. And the market for beverages is estimated to be worth CAD$1.6 billion annually.
Headwinds for Aurora stock
Aurora does have several factors working in its favor. The company still leads the industry when it comes to potential production capacity, and it is the only company with any significant international reach.
But Aurora’s balance sheet continues to be a problem and investors are growing increasingly concerned about the company’s cash flow. Not to mention, the company has over CA$3 billion in goodwill assets, which is much higher than its current market cap.
One Cantor Fitzgerald analyst even stated that activist investor Nelson Peltz needs to encourage the company to practice stronger financial discipline this year.
Overall, Aurora stock may be profitable, but that doesn’t mean it’s a good investment. My advice is to continue to steer clear in 2020 unless the company starts showing significant signs of improvement.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.