Marijuana Market Gains
Continuing along in our series of retrospectives in the marijuana stock market (see OGRMF stock here and CGC stock here), we’re now taking a look at another industry powerhouse, Aurora Cannabis Inc (NYSE:ACB), in our ACB stock prediction for 2019.
The company would have netted investors a 1,600% return had they invested in it three years ago. On a $1,000 buy, that would mean a gain of $16,000 in three short years. That’s one hell of a return.
But we have to ask the question: Are ACB stock’s best days behind it? My ACB stock prediction shows a company with potential—I see ACB stock doubling in 2019—but also with its failings.
First, let’s talk about how Aurora Cannabis stock got to this point.
Aurora Cannabis is the second-largest marijuana company by market cap, with over $10.0 billion, nipping at the heels of Canopy Growth Corp (NYSE:CGC) and its market cap of $16.0 billion. And that difference has meant the world to ACB stock.
Chart courtesy of StockCharts.com
You see, the company has long thirsted to be the dominant pot stock. It has taken great pains to catch up to Canopy Growth Corp and has, for the most part, come up short.
ACB stock looked to boost its projections by making frequent and lavish acquisitions in an attempt to grow its production capacity and market cap. Its famous multi-billion-dollar acquisition of MedReleaf Corp in 2018 was the largest at the time in the industry and was made in an attempt to, again, catch up to Canopy Growth.
While the marijuana market in general saw huge gains over the past three years, Aurora’s aggressive acquisition strategy has been coming up lame as of late.
In 2018, for instance, Aurora Cannabis stock fell significantly while its competitors, like CGC stock, fared much better, as can be seen in the chart below.
Chart courtesy of StockCharts.com
Aurora Cannabis has ardently stuck to its aggressive buying strategy—for good and for ill.
That has not changed in 2019 (which we’ll explore in detail below).
But the real problem here is that while ACB stock has been overly focused on buying other companies, it hasn’t been able to attract outside investment in its business.
CGC stock was catapulted in August 2018 due to a reinvestment from its Big Alcohol partnership with Constellation Brands, Inc. (NYSE:STZ).
Other marijuana companies—namely Hexo Corp (NYSE:HEXO) and Cronos Group Inc (NASDAQ:CRON)—also snared deals with large outside companies.
That stings Aurora Cannabis stock as both Hexo and Cronos have far smaller market caps and yet, in this one key area, are far ahead of the game.
Aurora was linked to The Coca Cola Co (NYSE:KO) at one time, but that deal never materialized.
And that brings us back to that question: Are Aurora Cannabis stock’s best days behind it?
While I don’t believe that is the case, its long-term future certainly hinges on it finding an outside partner or orchestrating a deal of similar magnitude. Until then, I fear that while ACB stock will still likely experience great gains, it will be outperformed by its competitors.
But if ACB stock does land a partnership, the company has a lot of potential, which we’ll explore more in my ACB stock prediction below.
ACB Stock Prediction for 2019
While the determining factor in my ACB stock prediction is the company’s ability to draw in a partner, there’s a lot of potential within the company to excel should that event take place.
And, to be fair, it’s not exactly as if ACB stock has been a bummer in 2019, either.
Chart courtesy of StockCharts.com
As you can see in the chart above, Aurora Cannabis stock has been off to a great start in 2019. Much of the industry has seen huge gains over that time—and some have outperformed ACB stock—but near 60% gains in a couple of months is a great rate of return.
The company has also scored a number of solid wins in 2019.
It recently completed its buy of Whistler Medical Marijuana Corporation from Cronos Group. The sale represented around 19% of Whistler’s issued and outstanding common shares and is valued at CA$175.0 million. (Source: “Cronos Group Inc. Exits Investment in Whistler Medical Marijuana Corporation,” Globe Newswire, March 4, 2019.)
It also expanded its global footprint with its acquisition of Gaia Pharm Lda.
Aurora will assume a 51% stake in the Portuguese marijuana company. The deal will see the construction of a new facility that is expected to be completed in 2020.
Phase 1 of the construction will see 4,409 pounds (2,000 kilograms) per annum produced, doubling to 8,818 pounds (4,000 kilograms) by Phase 2. (Source: “Aurora Cannabis Expands into Portugal, Enhancing European Market Leadership,” Cision, February 26, 2019.)
I’ve always put a lot of emphasis on global expansion, so it’s good to see Aurora Cannabis leveraging its capital in an effective way. After all, the future of the market is global, and Aurora is positioning itself to be a prime player when it does open up.
Aurora Cannabis was on the receiving end of another boon earlier in the year by way of Wall Street investment bank Jefferies Financial Group Inc (NYSE:JEF).
The bank’s coverage of marijuana stocks was particularly positive for Aurora, writing “Aurora, along with Canopy, is best placed to dominate globally in the years ahead.” (Source: “A Wall Street bank just started covering 7 marijuana stocks. Here’s what it’s saying.,” Markets Insider, February 25, 2019.)
And finally, you had strong numbers coming out in its most recent quarterly report.
Net revenue hit CA$54.2 million, up 83% from the last quarter and a whopping 363% from a year before. While those numbers may seem stellar, they weren’t all that unexpected; Canadian marijuana legalization helped spark a huge sales boost, as you would expect. (Source: “Aurora Cannabis Announces Financial Results for the Second Quarter of Fiscal 2019,” Aurora Cannabis Inc, February 11, 2019.)
Still, those were fantastic figures that, again, helped spark along ACB stock to a fantastic start to 2019.
That all goes to show that Aurora Cannabis has everything it needs in place to be a dominant marijuana stock; the only thing holding it back is that lack of partnership.
Again, while I expect gains to continue apace for ACB stock, I do believe that other marijuana companies that have already landed those partnerships are better suited in the long run.
Conversely, if Aurora is able to land a big partnership in 2019, expect shares to climb in a hurry. As such, ACB stock has one of the highest potentials among marijuana stocks, but with a risk that it may never quite fulfill that potential.
In my ACB stock prediction, there’s no reason to doubt that the company can’t double its value in 2019.
The issue lies in the long term, with many other pot stocks creating further and further separation in some key areas.
While the future is still very bright for ACB stock, it does ultimately need that outside investment if it hopes to keep up with its competition.