Choosing the Best Marijuana Stock
Marijuana industry players are fighting tooth and nail as they wage a battle based on “survival of the fittest.” In just one year, a bajillion new marijuana startups have propped up as they discover there’s immense money to be made in this young industry. Leading this battle are two “narwhals” of the north, Canopy Growth Corp (OTCMKTS: TWMJF) (TSE: WEED) and Aurora Cannabis Inc (OTCMKTS: ACBFF), (TSX: ACB). And if you’re a new investor torn between them–that is, Aurora Cannabis vs Canopy Growth stock– then you’ve landed at the right place.
Just as we have “unicorns” in the U.S. (a metaphoric moniker for companies with a market capitalization of $1.0 billion or more), we have the “narwhals” in Canada. These are the billion-dollar companies of out northern neighbors.
Canada’s booming marijuana industry has given us two big marijuana narwhals this year, Canopy Growth Corp and Aurora Cannabis Inc. They are leading the pack in Canada, where the government has announced plans to fully legalize marijuana by summer 2018.
While pot is getting fully legalized throughout Canada, right across the 49th parallel, the green crop has entered legal territory in 11 U.S. states (for either recreational or medicinal use) just this year, with many more states expected to follow in their footsteps in the coming months.
All in all, it’s been a great year for pot enthusiasts and equally great for marijuana stock investors who have witnessed triple-digit gains in their year-to-date holdings.
But for new investors, the booming industry has presented a grave challenge. There are way too many choices leaving them confused.
So let me make it easy for you. Forget about these little-known marijuana companies promising to make you an overnight millionaire. Investing in these micro-caps is fraught with risk because chances are that five years down the road, they won’t even be around.
That’s because seeing money pour into this industry, new moms and pops have begun growing pot in their backyards. The problem is they don’t have enough money to scale their business. They are finding it extremely hard to break even, just as the heavyweights drive down prices in competition. This is exactly why most of the marijuana companies have their income numbers splattered in red.
This brings us full circle to our two narwhals, the two leading marijuana companies in Canada which are the real potential investments you need to look at.
The choice between Canopy Growth (WEED stock) and Aurora Cannabis (ACB stock) may be tough, but we have a winner. Stay with me.
Aurora Stock vs Canopy Growth Stock: Which One Will Win?
Canopy Growth may be rubbing shoulders with the bigwigs across the border, but Aurora Cannabis is not bogged down by all the press coverage it’s getting.
Earlier this year, I made three wild marijuana stock predictions for 2018. My first prediction has already turned out to be true.
I had predicted that we’ll be seeing at least one prominent case of a major merger or acquisition from within or outside the industry. Turns out Canada’s largest weed producer, Canopy Growth, has become the most recent target.
America’s leading producer of popular alcohol brands, Constellation Brands, Inc. (NYSE: STZ) bought a 10% stake in the company, and everybody has been talking about it.
But many have yet to hear of Aurora’s quiet takeover move, which could create a $3.0-billion company big enough to take on Canopy Growth.
Aurora has just made a hostile move to acquire its competitor CanniMed Therapeutics (TSE: CMED), another Canadian marijuana player busy strengthening its position in the industry.
If it works out, Aurora will be able to emerge as a big force against Canopy Growth, with an added weed production capacity and a comparable network of registered marijuana patients.
This is exactly why I’m placing my bets on Aurora stock. But if you doubt my wisdom and need more proof that Aurora stock is possibly better than Canopy Growth stock, then read on.
While Canopy Growth does have an edge for being the market leader in Canada, Aurora Cannabis has a better moat; it is producing weed at a lower cost than its bigger rival.
It’s true that both producers are making losses right now, but once profits begin to flow after the legalization, Aurora may be in a position to beat Canopy Growth for delivering better earnings per share to investors based on higher gross margins.
Likewise, although Canopy Growth has a bigger production capacity as of now, by summer of next year, when Canada will have legalized weed, both producers will be neck-in-neck in the race.
Aurora is in the process of building the world’s biggest marijuana production facility, ”Aurora Sky,” which, apart from adding 100,000 kilograms of additional production capacity, will be further drive down its costs. The high-tech facility will use automation and genetic engineering to produce high-quality, low-cost strains.
Canopy Growth has also had a lead in international expansion, but Aurora is right behind, taking swift strides to catch up. Aggressive global expansion is underway at Aurora, with a number of international partnerships and acquisitions in the works.
Likewise, it’s true that Canopy Growth is currently selling more weed in absolute terms,. However, a comparison of Aurora revenue growth vs. Canopy revenue growth shows that Aurora’s revenue is growing at a faster pace.
Quick Snapshot: Aurora Cannabis Vs. Canopy Growth
|Aurora Cannabis||Canopy Growth|
|Most Recent Q-o-Q Revenue Growth||14.7%||11%|
|Production Capacity||Building world’s largest, most technologically advanced production facility, Aurora Sky. Production capacity expected to surpass 100,000 by summer next year.||Current capacity = 31,000 kgs. Expected it to triple by summer next year.|
|Moat||Low cost producer. Well positioned to beat the leader.||Leader in Canadian market|
|Average cost per gram||$1.91||$2.73|
|Expansion||Recent equity investments in Germany and Australia. Looking to expand in other markets.||Already active in Germany and Australia. Recent partnerships in Spain and Denmark. Expanding into Jamaica and other markets.|
|Registered Patients (Active & Pending)||>20,000 (To reach ~40,000 if CanniMed takeover deal closes)||>50,000|
Source: Company Filings
On top of all this, Aurora stock has delivered better returns to investors this year than Canopy Growth. The Canopy Growth price chart, superimposed over Aurora Cannabis’ price chart, returns a clear winner in terms of performance.
While Canopy stock is up about 116% this year, Aurora stock delivered nearly double the return at 210%.
Chart courtesy of TradingView.com
You can put two and two together now. It’s obvious that Aurora takes the trophy today.
I must remind my readers that marijuana stocks are inarguably some of the most speculative investments of today. While it’s true that with high risk comes high rewards, that only works if you pick the right investments. It’s always better to stick with the more established industry names than betting on a little-known mom-and-pop in this space.
Canopy Growth and Aurora Cannabis are two of the best publicly traded marijuana plays. But if I were to pick the best marijuana growth stock ahead of Canada’s marijuana legalization in 2018, I would, hands down, pick Aurora.
The latter has a higher growth potential in the coming days and markets tend to reward high-growth stocks generously. Just compare Tesla Inc (NASDAQ:TSLA) with Ford Motor Company (NYSE:F), or Amazon.com, Inc. (NASDAQ:AMZN) with Apple Inc. (NASDAQ:AAPL), or two stocks in any other industry and you’ll see high-growth stocks delivering better returns (at least in the short term).
So if you can stomach volatility, marijuana stocks may be up your alley. In my investment almanac, Canopy Growth may be more of a safe play for the long haul, but Aurora Cannabis is seemingly the better investment, with potentially higher rewards in the near term as Canada Day approaches.
So if you’re ready to take higher but calculated risk, then consider Aurora Cannabis stock. Remember: fortune favors the bold.