The Dec. 4 passage of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act by the U.S. House of Representatives should have been a happy occasion for Aurora Cannabis (NYSE:ACB) and ACB stock.
After all, the act decriminalizes cannabis at the federal level, providing additional opportunities for Aurora and all the other Canadian cannabis companies south of the border.
However, in five days of trading since, it’s been nothing but downhill for Aurora’s share price. As reality set in that the House’s move represents nothing more than a symbolic gesture, investors have taken it as a cue to exit.
Aurora’s stock is up 152% since hitting a 52-week low of $3.71 on Oct. 28. For the Edmonton-based company to remain in double digits, it will have to do more than ride President-elect Joe Biden’s coattails.
It was a nice story, but that’s it.
I’m 100% behind the federal decriminalization of cannabis. Heck, if I had it my way, the U.S. federal government would decriminalize all illicit drugs, but that’s a subject for another day. However, for too long, Aurora has been overpromising and under-delivering.
It’s time for Aurora CEO Miguel Martin to step up in 2021. Symbolic gestures just won’t cut it.
Aurora Does Have Some Quality Assets
When you consider that Aurora has a trifecta of revenue streams — medical cannabis, consumer cannabis and hemp-derived cannabidiol (CBD) — you would think that its business would be thriving.
And in some ways, it is.
The company has the number one Canadian medical-cannabis platform by revenue and strong international growth. Its CBD brand Reliva has become the first or second choice of most shoppers at brick-and-mortar retail stores. And, personally, I’ve tried its Aurora Drift chocolate edibles, and they were pretty good.
So, it’s not as if the business doesn’t bring anything to the table.
However, InvestorPlace’s Vince Martin recently called Aurora out for not having a large enough presence in the U.S., a key market to conquer if you want to be a global cannabis player.
“The company has minimal exposure to the U.S., even assuming federal legalization. A stretched balance sheet is forcing the company to slash costs, and would limit its ability to aggressively tackle a federally legalized market,” Martin wrote on Dec. 8.
My colleague is right to a certain extent. However, I don’t think there’s any question that the acquisition of Reliva in May, which cost it a maximum of $85 million in stock, gives it excellent expansion potential in the lucrative U.S. CBD market.
Reliva’s not going to be the difference-maker, but it will give the company time to figure out how to expand its presence further south of the border.
Where Does ACB Stock Go From Here?
“With 25 years of experience in the consumer packaged goods industry, it is Martin’s time spent at Altria (NYSE:MO) as senior vice president of sales and distribution that ought to make him a refreshing change from former CEO and co-founder, Terry Booth,” I wrote on Sept. 16.
Having been CEO of Reliva before becoming chief commercial officer of Aurora, he was ideally suited to hit the ground running. Now, three months into his promotion as CEO, things are starting to happen.
On Nov. 25, Aurora Europe announced its first shipment of “Made-in-Europe” medical cannabis to German pharmacies. The dried flower was produced at Aurora Nordic in Denmark. Capable of producing 10,000 kilograms of high-quality medical cannabis, Aurora is ready to take the European market by storm.
Two years in the making, Aurora Nordic will be a key cog in the wheel.
On the same day of its announcement in Europe, Aurora revealed that it had entered into a strategic supply agreement with Cantek Holdings, a leading Israeli medical cannabis company. The agreement calls for Aurora to supply Cantek with a minimum of 4,000 kilograms of bulk dried flower annually. The product will be processed, turned into finished product and co-branded under the Aurora and Cantek names.
So, things are happening.
The Bottom Line
In my September article, when ACB was around $7, I suggested it might be a good buy for aggressive investors.
“The new CEO is taking the helm of a business that’s been completely humbled over the past seven months. It will be a tremendous challenge for Martin as he focuses on Aurora’s four goals for growth,” I wrote. “If you’re an aggressive investor, having lost 30% of its value over the past month, now is an excellent time to make a bet on ACB stock, but only if you can afford to lose the entire bet.”
Although ACB stock dropped to as low as $3.71, it’s managed to recover and then some.
At this point, I would be hesitant to buy its shares for double digits. However, I do think it’s making progress. Were it to fall back into the $7 range, aggressive investors ought to be all over it.
If you’re looking for a long-term investment, there are better bets in Canada and the U.S.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.