Aurora Stock Forecast
One of the most aggressive marijuana companies in 2018 has been Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB). The company has been buying up other businesses left and right, and is close to completing the biggest deal in the industry’s history.
These moves, if they all pan out, are going to do wonders for the Aurora stock forecast.
Let’s take a quick look at two of the most recent pickups for Aurora Cannabis Inc.
There is, of course, the blockbuster deal to acquire MedReleaf Corp (OTCMKTS:MEDFF, TSE:LEAF), valued at about CA$3.2 billion. The price makes this acquisition the biggest one to ever take place in the marijuana industry to date, and will likely result in the formation of the largest marijuana company by market cap.
While the MedReleaf acquisition was certainly the most headline-grabbing of its buys, there is also hope that Aurora stock benefits from smaller deals, like the recent purchase of Anandia Labs in an all-stock deal worth about CA$115.0 million. (Source: “Aurora Cannabis buying Anandia Laboratories in all-stock deal valued at $115M,” Financial Post, June 12, 2018.)
The Anandia Labs acquisition partners Aurora with a research and development company that provides analytical testing for clients licensed under Canada’s medical marijuana regulations.
Chart courtesy of StockCharts.com
Both moves have yet to have major impacts on Aurora stock in the near term, but that’s because we’re looking at a long-term stock here. These acquisitions aren’t meant to create short, unsustainable bursts in value, but rather serve as the foundations for a company to dominate the marijuana industry for years to come.
And it just might work.
Why Stock Acquisition Makes Sense
If it all goes according to plan, the Aurora stock forecast is going to hugely benefit from these acquisitions.
Here are three reasons why Aurora stock stands to gain.
1. Production Capacity
Probably the greatest benefit to the Aurora stock forecast is that the company is gaining a huge leg up in terms of production capacity, especially with its MedReleaf acquisition.
The company is going to be able to supply a significantly higher amount of marijuana to an expanding and hungry market.
Consider that the company is already projecting that it will produce about 430,000 kilograms per year after the completion of its Aurora Sun Facility. Throw MedReleaf into the mix, and you have a company that’s capable of generating literal tons of cannabis just as the market continues to expand across the globe. (Source: “Aurora Cannabis to Build ‘Aurora Sun’, 1.2 Million Square Foot Facility in Medicine Hat, Alberta,” Cision Ltd, April 16, 2018.)
Another huge boon to Aurora is the buzz that is created whenever the company makes these acquisitions, especially the MedReleaf one.
Being able to gain a hold of the media’s attention is helpful to, not only attract new eyeballs to their name–and hopefully those eyeballs are followed by dollars–but also develop an air of legitimacy around the company.
The marijuana industry still very much suffers from the negative (and erroneous) implication that it is an illicit business. This is, of course, the result of decades of anti-marijuana prohibition, and will take time to overcome, and it does at times hinder stock progress.
By behaving like a real business (and showing that it has cash that it’s willing to throw around in order to expand) skittish investors may be able to overcome their concerns in time, again boosting the expectations for Aurora stock.
Specifically relating to the Anandia Labs acquisition, Aurora will benefit from the company’s research and development wing, potentially giving it a leg up on the competition.
By incorporating other businesses into its overall vision, Aurora is giving itself a higher potential to innovate.
As we all know, innovation is often the key to massive stock gains, especially in emergent industries that are as crowded as the marijuana sector. As such, these acquisitions make sense.
Aurora Stock Overvalued?
While there are certainly positives to this acquisition rush, one nagging issue is concerns about overvaluation.
The marijuana industry has exploded in recent years, with some stocks gaining three, four, even five times their value in relatively short amounts of time.
This can be worrying for investors of all stripes who see a bubble forming (just ask the Bitcoin buyers). Aurora is no exception, and is perhaps more singularly focused on due to its aggressive acquisition strategy.
After all, the more it buys, the bigger it gets, and the easier it is to charge the company with overvaluation—especially if you believe that the companies it acquires are themselves overvalued.
But the whole overvaluation debate often loses sight of the bigger picture.
Aurora stock is overvalued if you only consider the marijuana markets that are currently legal. It’s a depressingly small list. After all, it’s why Canada is the hub of cannabis; it’s the only developed country with a federal plan to legalize recreational marijuana.
So, based on the markets that are open at the moment, there’s no way to justify Aurora’s value (or most other marijuana stock values, for that matter).
But that is destined to change. The majority of the United States already permits marijuana in one form or another, and support is building on a federal level to see real pot reform in the country.
What’s more, several countries in the EU, most notably Germany, are softening on marijuana. Should any of them open up to the marijuana business, we’ll see the market literally double or triple with the stroke of a pen.
As mentioned earlier, this is a long-term stock, and these acquisitions are long-term plays. Aurora’s acquisitions will make more sense over time as these markets open up. The question, as always, is a matter of when. The longer it takes, the harder it will be to sustain Aurora’s value.
But it’s often better to be early than late in the stock market. Aurora just needs to make sure it’s not too early.
Aurora Cannabis Inc’s plan is simple: buy up these burgeoning pot stocks while they’re relatively cheap and be ready to take advantage of a fast-growing market. It makes a lot of sense and has me excited about Aurora Cannabis Inc.
The only problem is that Aurora is banking on a vast expansion of the marijuana market. The expansion is coming; that is without a doubt.
What is in question is the timing. Will it be next year when another major market opens up to legal marijuana? Five years? 10? It’s a difficult calculation to make, but all signs are pointing to a timeline that is shrinking.
If major expansion is indeed around the corner, the acquisitions are going to make the Aurora stock forecast one of the brightest in the industry.