Why Investors Need to Take a Look at ACB Stock
For the most part, marijuana stocks are known as up-and-coming opportunities.
And that’s because cannabis companies—even the well-known ones—are still relatively small compared to the blue-chip names in today’s market.
So it’s quite surprising to see Aurora Cannabis Inc (NYSE:ACB), a pot stock, mentioned in the same sentence as Apple Inc. (NASDAQ:AAPL), one of the biggest companies in the world by market capitalization.
In fact, Aurora Cannabis just took Apple’s spot as the favorite stock among millennials. (Source: “A cannabis producer just topped Apple as the favorite stock among millennials (ACB, AAPL),” Business Insider, January 31, 2019.)
The story uses data from “Robinhood,” a popular trading app for millennial investors. It found that:
Aurora Cannabis is now held by 247,517 Robinhood users, up more than 20,000 from last week. The marijuana stock outranked all the others on the app, including Apple, which had maintained its top-ranking position since the week of November 8. The smartphone giant’s stock now ranks second in terms of Robinhood ownership, at 237,050 shareholders.
Now, I know there’s a perception that millennials are risk takers. But in the past, when they saw a new company in a new industry growing at a fast pace, what did they do? They ignored it and bought Apple, one of the most established companies in the world.
Apple makes a product that millennials know and love. It’s also a brand that they resonate with. In fact, the popularity of Apple’s products among millennials is one of the reasons why the company is so successful.
Just take a look at pictures outside Apple retail stores during a new “iPhone” launch, and you’ll see that millennials make up the bulk of the long lines waiting to get their hands on the newest version of the Apple product. (Source: “Long lines return to Apple stores for the iPhone X,” Today Online, November 2, 2017.)
That’s why it was a big deal when Aurora Cannabis Inc took Apple’s place as the favorite stock of millennials.
As I said, marijuana stocks, no matter how popular, are not exactly blue-chip names. In fact, they are more often considered risky bets than solid investment ideas.
Also, with so many marijuana companies claiming to be future heavyweights in the business, it’s not easy to predict which ones will be the actual winners. At the end of the day, all of the popular cannabis growers have yet to reach their full production capacity.
Furthermore, millennials make up a significant portion of pot users. According to a survey from Yahoo! News and the Marist Institute for Public Opinion, 52% of America’s 55 million marijuana users were millennials. (Source: “Yahoo News/Marist Poll: Weed & The American Family,” Marist Institute for Public Opinion, April 17, 2017.)
From millennials’ fondness for Apple stock, we know that young investors are willing to put money in a company that makes a product that they enjoy. If that is also the reason why Aurora Cannabis became their new favorite stock, it could bode well for the Canada-based cannabis producer.
In fact, ACB stock is already firing on all cylinders. In just over a month into 2019, the company’s share price has surged by more than 60%.
Aurora Cannabis Inc Stock Chart
Chart courtesy of StockCharts.com
A Top Marijuana Stock for 2019
If you’ve been following Profit Confidential, you’d know that Aurora Cannabis is already one of our top picks from the marijuana industry. The reason is simple: While most companies would be proud to deliver double-digit sales growth, Aurora Cannabis’ performance is on a completely different level.
In the quarter ended September 30, 2018, the company generated $29.7 million in revenue, marking a staggering 260% increase year-over-year. (Source: “Aurora Cannabis Announces Financial Results for the First Quarter of Fiscal 2019,” Cision, November 12, 2018.)
And the company is just getting started. For the December 2018 quarter, Aurora Cannabis Inc’s revenue is expected to be in the range of $50.0 million and $55.0 million.
At the midpoint of that guidance range, the top-line number would represent a 349% increase from the $11.7 million the company generated in the same quarter in the prior year. (Source: “Aurora Cannabis Provides Guidance for the Second Quarter of Fiscal 2019, Anticipating Net Revenues of $50M to $55M,” Aurora Cannabis Inc, January 8, 2019.)
Just like Apple, Aurora Cannabis has a deeply entrenched market position. In the medical marijuana business, the company serves around 71,000 patients in Canada.
And because Canada legalized recreational marijuana for adult use last October, the country has opened a whole new set of opportunities for cannabis companies.
The good news is, Aurora Cannabis was quick to take action. In Ontario, the most populated province in Canada, the company’s brands accounted for around 30% of the total market supplied through the Ontario Cannabis Store—the only legal seller of recreational pot in the province.
In British Columbia, another populous Canadian province known for having a ton of weed smokers, Aurora Cannabis had the top four best-selling dried flower products, and two of the top five best-selling oil products. (Source: Ibid.)
Capitalizing on the Global Cannabis Boom
Mind you, the rising demand for cannabis is happening not just in Canada, but around the world. As it turns out, Aurora Cannabis is well positioned to capitalize on the global trend. Other than being a major player in North America, the company also has a leading medical cannabis market share in Europe and Latin America. (Source: “Investor Presentation,” Aurora Cannabis Inc, last accessed February 5, 2019.)
The best part is, as the demand continues to grow, Aurora Cannabis will stand ready to meet that demand thanks to its 11 production facilities.
In its previous earnings report, Aurora Cannabis said it had a run rate production capacity of around 70,000 kilograms per year. That number is expected to more than double to 150,000 kilograms a year by early 2019. And by mid-2020, the company’s run rate annual production capacity is expected to top 500,000 kilograms. (Source: Aurora Cannabis Inc, January 8, 2019, op cit.)
When a leading producer is ramping up production in a market with growing demand, one thing is for sure: that producer will generate more sales.
Something to Look Forward To
Last September, it was reported that beverage giant The Coca-Cola Co (NYSE:KO) was in talks with Aurora Cannabis about developing cannabidiol (CBD)-infused drinks.
CBD is a non-psychoactive compound found in cannabis plants. People have been using CBD to treat pain and anxiety. Note that by itself, CBD does not give users the “high” associated with marijuana. (Source: “Coca-Cola in talks with Aurora to develop cannabis drinks: Sources,” BNN Bloomberg, September 17, 2018.)
While no deal came out of those talks, it did make investors aware of the opportunities lying ahead for this cannabis producer.
The reality is, the rise of the pot industry has attracted companies from all kinds of backgrounds.
For instance, “Corona” maker Constellation Brands, Inc. (NYSE:STZ) invested CA$5.0 billion in Canopy Growth Corp (NYSE:CGC). (Source: “Constellation Brands’ $5 Billion CAD ($4 Billion USD) Investment in Canopy Growth Closes Following Shareholder and Canadian Government Approval,” Constellation Brands, Inc., November 1, 2018.)
“Marlboro” maker Altria Group Inc (NYSE:MO) agreed to invest CA$2.4 billion in Cronos Group Inc (NASDAQ:CRON). (Source: “Cronos Group Inc. Announces C$2.4 Billion Strategic Investment from Altria Group, Inc,” Cronos Group Inc, December 7, 2018.)
Companies want to partner with cannabis companies not just to expand their product offerings, but also to hedge risk. As weed becomes legal in more markets, consumers may use it as a substitute for other products, such as alcohol, tobacco, or even painkillers.
According to a recent study, counties in states with medical marijuana laws showed a 12.4% decline in monthly alcohol sales. (Source: “Marijuana and Alcohol Evidence Using Border Analysis and Retail Sales Data,” Social Science Research Network, last accessed February 4, 2019.)
With its cultivation scale and product development expertise, Aurora Cannabis could be a great partnership opportunity for an out-of-industry company that’s trying to get on board the marijuana profit train.
By surpassing Apple as millennials’ favorite stock, Aurora Cannabis Inc shows that marijuana stocks are indeed heading into the mainstream.
Just like its peers, Aurora’ shares will be subject to market volatility, which tends to be quite high in the weed industry. But due to the strong underlying fundamentals of its business, ACB remains a top marijuana stock for 2019.