ACB Stock Forecast
Aurora Cannabis Inc (NYSE:ACB) has a lot going for it, but the company’s long-term potential is being overshadowed by the stock market correction that’s hammering the broader market.
In September, the Edmonton, Alberta-based marijuana company reported strong fourth-quarter and full-year results. On October 18, Aurora stock commenced trading on the New York Stock Exchange (NYSE) with the NYSE:ACB listing, giving the company all-important exposure to American investors.
While the recent marijuana market fall has been distracting, Aurora Cannabis continues to be one of the most interesting marijuana stocks and should reward investors in 2019 and those looking to fortify their retirement portfolios.
Aurora stock was bullish in the run-up to the October 17 legalization of recreational marijuana in Canada. After bottoming in mid-August at $4.05, Aurora’s share price increased by an eye-watering 209% over the following weeks, hitting an intra-day high of $12.53 on October 16.
Not too long ago, investors were pouring money into marijuana stocks, afraid to miss out on the next big thing. And Aurora certainly deserved the attention. The third-largest marijuana stock based on market cap, it has strong global market penetration, massive production capacity, and great financial results.
Then, as if on cue, when the stock market correction hit, Aurora Cannabis—like virtually every other marijuana stock—took a plunge. Since October 16, Aurora’s share price has fallen 51%. At $6.01 per share, it’s sitting on a $6.00 support level. Below that, the next support levels are $5.00 and $4.50.
That said, the recent pullback in Aurora’s share price has more to do with overall market sentiment than with Aurora’s bottom line. For many reasons, the company continues to have excellent medium- and long-term growth potential.
ACB Production Capacity
Aurora Cannabis is one of the world’s largest leading cannabis companies, with sales and operations in 18 countries across five continents. It is the third-largest marijuana company by market cap, at $6.3 billion, trailing only Canopy Growth Corp (NYSE:CGC), with a market cap of $8.2 billion, and Tilray Inc (NASDAQ:TLRY) at $8.9 billion.
One of the reasons investors are excited about Aurora is its massive production capacity. The company has a funded capacity of 430,000 kilograms per year, which is set to increase. (Source: “Overview,” Aurora Cannabis Inc, last accessed October 30, 2018.)
This massive production ability is achievable thanks, in large part, to the company’s rising number of growing operations.
“Aurora Sky” is the world’s largest-capacity and most technically advanced cannabis greenhouse facility. At 800,000 square feet, it can produce in excess of 100,00 kilograms of cannabis annually. It’s located at the Edmonton International Airport in Alberta, Canada, giving it immediate access to domestic and international courier services, customers, and security.
The “Aurora MTN” production facility is located in Cremona, Alberta, which is just two hours south of Edmonton. It’s the world’s first indoor purpose-built cannabis facility. The 55,200-square-foot growing operation can produce 4,800 kilograms annually.
Aurora owns 51% in Aurora Nordic, a joint venture with Alfred Pedersen & Son. Located in Odense, Denmark, the 1,000,000-square-foot hybrid greenhouse is similar to Aurora Sky in terms of technology. When completed, it will have a cultivation capacity in excess of 120,000 kilograms.
To that end, Aurora Cannabis has also established Aurora Europe GmbH, a pan-European company, as it looks to further develop its cannabis infrastructure in Germany, Italy, and Denmark—ultimately serving a region with a population of over 400 million people.
Best of all, few cannabis companies have the infrastructure to serve this massive audience.
Aurora Cannabis is also the cornerstone investor in Cann Group Ltd (OTCMKTS:CNGGF, ASX:CAN), Australia’s first licensed cannabis company. (Source: Ibid.)
In addition to Aurora’s strong organic growth, its aggressive merger and acquisition strategy has helped it diversify its product offering.
To date, Aurora has 15 wholly owned subsidiary companies: MedReleaf Corp, CanvasRX, Peloton Pharmaceuticals Inc., Aurora Deutschland, H2 Biopharma Inc., Urban Cultivator, BC Northern Lights, Larssen Greenhouses, CanniMed Therapeutics Inc., Anandia Laboratories Inc., HotHouse Consulting, MED Colombia SAS, Agropro, and Borela.
There is also the pending acquisition of ICC Labs (OTCMKTS:ICCLF, CVE:ICC).
Aurora Cannabis sells dried cannabis products, cannabis oil, doubled-milled decarb (DMD) capsules, and milled blend cannabis. Aurora has a number of strains currently in flower and harvest, all of which will be available in the coming weeks and months. (Source: “Strains,” Aurora Cannabis Inc, last accessed October 30, 2018.)
Aurora Global Expansion
Aurora Cannabis has been busy snapping up companies. Two of its largest Aurora acquisitions were Agropro and ICC Labs Inc.
Agropro is Europe’s largest producer of organic hemp and hemp products. With this acquisition, Aurora got immediate access to 1,600 hectares (3,953 acres) of land to potentially grown 1,000,000 kilograms of hemp.
Moreover, Agropro is looking to expand its global footprint, with operations in Lithuania, Latvia, Estonia, and Poland. (Source: “Aurora Cannabis Acquires Europe’s Largest Organic Hemp Company,” Cision, September 12, 2018.)
In September, Aurora announced plans to acquire the South American-based ICC Labs. This will help establish Aurora as the industry leader in South America, a continent with over 420 million people.
ICC has captured in excess of 70% of the market share in Uruguay, the first country in the world to legalize adult, recreational use marijuana. ICC also holds licenses to produce medical marijuana in Colombia. (Source: “Aurora Cannabis’ $290-million deal to buy ICC Labs fuels surge in marijuana stocks,” Financial Post, September 10, 2018.)
Aurora Q4 2018 Results
For the fourth quarter of fiscal 2018 (ended June 30), Aurora posted strong numbers, with revenue advancing 223% year-over-year to $19.1 million. This is the last quarter that Aurora will report revenue derived only from medicinal marijuana. (Source: “Aurora Cannabis Inc. Announces Results For The Fourth Quarter And 2018 Fiscal Year,” Cision, September 24, 2018.)
Fourth-quarter net income came in at $79.3 million. In the fourth quarter of 2017, Aurora reported a loss of $4.8 million and in the third quarter of 2018, a loss of $20.8 million.
Perhaps most importantly, the gross margin on medical cannabis hit 74% compared to 58% in the same prior-year period and 59% in the third quarter. The increase was due to higher average selling price per gram of dried cannabis and higher cannabis oil sales.
Terry Booth, CEO of Aurora said,
[With] production capacity scaling up rapidly, we anticipate accelerated revenue growth during fiscal 2019. We have invested heavily in our organizational capabilities, including sales, marketing, and corporate talent and capacity, to ensure we will continue to drive strong and sustainable long-term growth.
Is Aurora in Talks With Coca-Cola and Diageo?
Few things make investors happy like major partnerships. But recent talk about Aurora partnering with The Coca-Cola Co (NYSE:KO) and Diageo plc (NYSE:DEO) may be nothing more than hot air. Or maybe not.
On September 17, Bloomberg reported that Aurora was in serious talks with Coca-Cola to develop cannabis-infused beverages. If true, that would be a major move by Coca-Cola into the marijuana sector.
Unlike other blockbuster deals between cannabis producers and alcohol companies that are designed to make drinks that give consumers a buzz similar to inhaling marijuana, this so-called deal would result in drinks aimed at helping ease cramping, inflammation, and pain.
The following day though, Aurora denied that it was on the verge of signing a deal with the world’s largest beverage company.
There were also reports that Aurora was in talks with Diageo, the company behind “Smirnoff,” “Johnnie Walker,” “Baileys,” and “Guinness.”
It seems unlikely though that an Aurora/Diageo partnership will happen. Not because the management at Aurora isn’t stellar; it’s just that another cannabis company has made better inroads with Diageo.
Aphria Inc (OTCMKTS:APHQF, TSE:APH) seems like the most likely cannabis company to team up with Diageo. At its November 2 annual meeting, Aphria will be nominating Tom Looney to its board of directors. Looney recently retired as President of Diageo U.S. Spirits and Canada. (Source: “NOTICE OF MEETING AND MANAGEMENT INFORMATION CIRCULAR FOR THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS to be held on November 2, 2018,” Aphria Inc, September 24, 2018.)
Then there’s Jakob Ripshtein, Aphria’s Chief Commercial Officer. He is the former Chief Financial Officer of Diageo North America and former President of Diageo Canada. (Source: “Aphria Appoints Chief Commercial Officer and Chief Legal Officer Adding Depth to Leadership Team and Implements New Governance Initiatives,” Cision, April 25, 2018.)
This doesn’t mean other lucrative partnerships aren’t possible, it’s just that the two most popular ones that get discussed around the office bong seem like a long shot. Though if one were to happen, it seems like an Aurora/Coca-Cola deal would be the front-runner.
Could Aurora Be a Buyout Target?
Aurora could be a buyout target. But not right now. The company is making aggressive moves to increase its production and global market share. The marijuana industry is also still in its infancy.
It seems unlikely that a major company will shell out $10.0 billion or more before it sees how the recreational marijuana market fares in Canada. And which other countries legalize marijuana next.
Remember, Canada has a population of just 36 million; less than the population of California. Should recreational marijuana use become legal in Europe, with a population of 400 million and the U.S., with a population of 300 million, the odds of Aurora being a takeover target is highly likely.
For now though, could Aurora be a buyout target? Sure, anything is possible. Is it likely to be a target by any major company right now? Probably not. It’s too early in the game.
The short-term outlook for Aurora remains uncertain. Again, not because of its operations or financials, but because the broader market is showing signs of weakness, with the S&P 500 and Dow Industries both either in, or approaching, correction territory.
But the overall outlook for the cannabis industry and those companies, like Aurora, that have a strong foothold in the Canadian market, massive infrastructure and production capacity, distribution agreements, and international expansion efforts remains strong.
That is why Aurora Cannabis will remain a major player in the marijuana industry for a long, long time.