Could the Aurora-Diageo Partnership Be the Best Match for the Marijuana Market?

Aurora-Diageo-Partnership-stock
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Aurora Cannabis Stock

The new craze sweeping the alcohol industry is finding a marijuana company to partner with in what has turned out to be one of the biggest developments in the pot stock market in 2018.

Now, Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) is said to be a potential target for investment by Diageo plc (NYSE:DEO), a U.K.-based spirits maker.

This is good news for Aurora Cannabis stock, which has had a rough go of it in 2018, and will help boost the Aurora Cannabis market capitalization. The partnership, if successful, will likely see Aurora Cannabis pot-infused drinks follow.

For now, the concrete details of Diageo’s entrance into the marijuana space are sparse.

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The company was said to be in talks with three companies about potential partnerships, with Aurora being a likely candidate.

“We never comment on speculation,” a Diageo spokeswoman said in an email to Bloomberg. “As we’ve said before, we are monitoring this space closely.” (Source: “Canadian cannabis stocks jump after report Diageo in talks with three pot producers,” Bloomberg, August 24, 2018.)

“There is so much happening in this area right now and we think it has incredible potential,” Aurora spokeswoman Heather MacGregor said in an email. “As a rule, we do not discuss business development initiatives until they are finalized, however we have a responsibility to our shareholders to give proper consideration to all relevant opportunities that are presented.”

Both statements were short on details, but movement is definitely being made on this front, even if this particular partnership doesn’t materialize.

While Big Alcohol-marijuana partnerships have been very common in 2018, the most impactful investment came by way of Constellation Brands, Inc. (NYSE:STZ) when it invested some $3.8 billion in Canopy Growth Corp (NYSE:CGC).

The move single-handedly ended the marijuana correction and sent stocks skyrocketing, with many gaining double-digits in a few short weeks and others climbing as high as 70% on the month.

Aurora Cannabis stock, no doubt, is hungry to get in on that action. While the company enjoyed a strong end to August when the Constellation deal went through, it has fallen behind some of its main rivals like Canopy Growth stock.

Aurora Cannabis stock has also had its sights set on dethroning Canopy Growth as the largest marijuana company, acquiring several companies before culminating in the biggest acquisition of the industry to date with its purchase of MedReleaf Corp. 

So it’s safe to say that Aurora would like to nab an alcohol partnership of its own.

The Aurora-Diageo stock forecast, however, is unlikely to have as dramatic an effect on the industry as the Constellation investment, simply because it’s doubtful that Diageo will muster up nearly the same capital injection.

It’s also worth noting that Aurora Cannabis stock has been late to the party in the past when it comes to major moves in the industry.

Remember, when Canopy and Cronos Group Inc (NASDAQ:CRON) both registered on major U.S. exchanges earlier in the year, Aurora was quick to release a statement claiming that it too was looking into switching.

That statement was the last that’s been heard concerning that plan. At the time, it yielded almost no stock benefits. Canopy and Cronos shares, on the other hand, swelled both when they announced their intentions to switch and when the change took place.

To investors, it seemed like little more than headline-chasing by Aurora Cannabis stock.

While I don’t believe that’s what’s happening here—the Aurora-Diageo deal seems like a very real possibility—there’s still a chance that it all is for naught.

All that being said, scoring this deal will likely do wonders for Aurora Cannabis stock and help boost a company that has had many struggles in 2018.

Big Alcohol Partnerships to Date

Below is a chart comparing Aurora Cannabis stock (red line) with two other companies that have made deals with alcohol companies: Canopy Growth stock (black line) and Hydropothecary Corp (OTCMKTS:HYYDF, TSE:HEXO) stock (blue line).

Chart courtesy of StockCharts.com

Analyst Take

There’s a reason so many marijuana companies are hungry for Big Alcohol deals.

As seen in the section above, when pot stocks form partnerships with Big Alcohol, share prices usually shoot up with haste.

In fact, the massive injection of capital by way of Constellation Brands not only lifted the target of said investment, but the entire industry.

These partnerships—considering how successful they’ve been so far—are only going to continue to grow in number.

And that brings us to Aurora Cannabis stock.

While the company would love to score an alcohol partnership—and there does seem to be substance around the Diageo deal—the company will have to make firm moves before we get too excited.