Insane … that’s what I’m calling buyers of Aurora Cannabis (NYSE:ACB) today.
From Feb. 12 through Feb. 19, Aurora stock surged 17% to around $1.71. At the time, ACB buyers considered this their bargain-basement price territory. And many investors were eager to grab a stake in the world’s second-largest cannabis company on the “cheap.” That was a mistake.
Since then, ACB stock has slid 40%, entering a new bargain basement for prospective buyers. But this, too, is a trap. A massive, market pitfall that will swallow you and your money whole.
Despite the juicy per share price, I won’t touch Aurora stock with a ten-foot pole and you shouldn’t either.
Aurora Stock Is Down 87% Over the Past Year
Aurora shares are in free-fall mode.
Since hitting their high-water mark in May of 2019, ACB shares have plummeted over 87% in value. The company’s market capitalization has also fallen from roughly $12 billion to just over $1 billion in the same time frame.
The one-year chart is god-awful:
Maybe investors who bought in last Friday assume things can’t get any worse for ACB, but I have bad news for those folks …
Things can get a lot worse and I strongly believe they will.
Looking at the chart I see no indications ACB is establishing a bottom. Aurora stock could fall another 50%-75% before enough buyers step in and help push shares higher with any significance.
And marijuana company’s most recent earnings report last Thursday gives little hope leadership at the beleaguered company can right the ship. Simply put, the numbers are downright awful.
Here’s a quick rundown …
A $981 Million Loss
Yes, you read that right …
ACB reported a total net loss of $981 million in its latest earnings report. Earnings per share came in at a loss of 18 cents per share, much worse than the consensus estimate of six cent per-share loss, as reported by Nasdaq.com.
Moving forward things don’t look promising either. The cannabis industry still faces several headwinds.
Growth last year was a lot slower than expected in Canada. The industry is facing oversupply problems and a lack of dispensaries to handle this oversupply. All of which have significantly impacted the bottom lines of many Canadian pot companies.
These problems can be fixed, but Aurora has its own unique issues in addition to these headwinds and those may be too much to overcome.
Aurora executives were quick to note the “Cannabis 2.0” movement in Canada, which opened the door for edible and vape sales, will help bolster revenue.
But the company also reported domestic medical sales were flat year-over-year, with only 90,000 people on their patient lists to date.
Statista reports over 360,000 Canadians have registered for medical marijuana as of June 2019, so we have to wonder why the second-largest cannabis producer in Canada only garners 25% of the market.
In addition to slow growth domestically, Chief Financial Officer Glen Ibbott also noted during their earnings call that European growth was “slower than originally anticipated.”
One more brick added to ACB’s wall of worry …
The elephant in the room however was never mentioned on Aurora’s earnings call. And by my records no analyst posed the one question everyone should be asking …
When Will ACB Pivot to Recreational Sales?
As far as my research shows there’s no indication this pivot is on anyone’s radar at Aurora. For potential investors that’s a problem. The company needs to make money somehow and their medical efforts aren’t cutting the mustard.
Plus, Aurora has an identity crisis. The website looks and feels like a recreational product site, but they swear by (and vehemently tout) the pure medical nature of their products. But in contrast to a company like MedMen’s product presentation, ACB feels light year’s behind.
Another problem I suspect Aurora stock will face in the near future is when other wholesale cannabis flower producers begin undercutting their wholesale prices. CFO Glenn Ibbott noted Aurora currently produces cannabis at a cost of $0.88 CAD per gram.
But now we are seeing companies in other regions, regions with superb growing conditions, producing the same quality of flower for nickels and dimes per gram.
And this is all on top of the massive write-offs and a recent CEO shakeup at ACB earlier this month.
Put together these forces may prove too much to overcome for ACB. Especially while facing the relentless scrutiny that a publicly traded company receives day in and day out.
My bold prediction is ACB will be forced to delist from the NYSE before the end of the year.
As of this writing, Sean McCloskey did not hold a position in any of the aforementioned securities.