At several points over the past two years, it looked as though Aurora Cannabis (NYSE:ACB) was going to make investors rich. Aurora stock posted triple digit gains in a matter of weeks on more than one occasion. However, that sentiment seems quaint at this point.
As February wound down, Cowen became the latest investment firm to downgrade ACB — noting a “shortage of cannabis stores and pricing pressure due to excess supply and thriving black market sales impact the sector.” At its latest close of $1.38, Aurora stock is down 38% so far in 2020.
Over the past 12 months, that performance is even worse. ACB has lost about 81% since this time last year, and 86% since shares approached the $10 level last March.
That said, does the spectacular dive in Aurora stock mean it is a buying opportunity? Ultimately, that depends on your faith that North American recreational cannabis markets are going to take off.
A Sputtering Recreational Cannabis Market
The first year of recreational marijuana legalization in Canada kicked off a frenzy of investment in cannabis companies. When the Canadian government passed legislation that would legalize recreational marijuana in the country within a year, Aurora stock went on a three-month run that saw it gain around 385%. However, the reality was underwhelming.
Production ramp up issues, a lack of retail outlets, readily available and cheaper black-market pot and apparent disinterest from consumers resulted in a year of disappointment for investors.
Cannabis 2.0 is now underway in Canada, adding cannabis extracts, beverages and edibles to the mix. But while the number of retail outlets to sell recreational marijuana and related products are increasing, this next phase of recreational cannabis sales is off to a tepid start.
In the U.S., the cannabis market has been estimated to be worth $100 billion. However, that assumes recreational marijuana and cannabis extracts are legalized at the federal level, something that continues to remain elusive.
So collectively, the recreational cannabis market seems to be up in the air for a few reasons.
Are Any Cannabis Stocks Performing Well?
The question needs to be asked: Is ACB the only cannabis stock that’s performing so poorly? Or are the factors that have hammered the Canadian marijuana producer endemic to the industry? Well, let’s look closer.
Canopy Growth (NYSE:CGC) has shown signs of life, including a 10% surge in February after a better than expected third-quarter earnings report. But, that gain was short-lived. And over the past 12 months, CGC stock is down 62%.
What about Cronos Group (NASDAQ:CRON)? Despite a push into international markets, CRON stock is off by 73% over the past year. Aphria (NYSE:APHA), another Canadian producer and another of the world’s largest cannabis producers, has shed 67% of its value over this period. Moreover, an investment in Tilray (NASDAQ:TLRY) is currently worth 84% less than it was at this time last year.
Overall, Cannabis 2.0 in Canada and a push to nationally legalize CBD in the U.S. have failed to provide a hoped-for boost for these stocks. Cannabis companies continue to operate at a loss, while oversupply remains a big issue. The past year has seen management shakeups, a PR nightmare over vaping deaths, costly expansions and a growing liquidity crisis. The recreational marijuana industry remains in a rut, with few producers not feeling the pain, and investors are understandably wary.
Bottom Line on Aurora Stock
Investment analysts don’t think much of ACB these days. Those tracked by the Wall Street Journal now have it as a consensus “hold.” For the past several months, it had been rated a “buy,” but faith the company would put together a turnaround has faded.
A year of consistent decline resulting in an 81% loss in value for Aurora stock will do that.
About the only thing going for Aurora Cannabis at this point is that it’s cheap. So when the primary reasons to consider an investment are hope that demand will suddenly materialize for its product — and that it’s cheap — is that a good decision? That may be exciting to some, but for most investors, Aurora stock remains something to avoid.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.