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Why Aurora Cannabis Bounced Back Today

Keith Speights, The Motley Fool

What happened

Shares of Aurora Cannabis (NYSE: ACB) were 8.4% higher as of 3:14 p.m. EST Thursday after gaining over 10% earlier in the day. The rebound largely offset the marijuana stock's decline experienced on Wednesday.

Aurora's only news was its announcement yesterday about the appointment of Dr. Jonathan Page as the company's chief science officer. Page previously served as CEO of Anandia Labs, which Aurora Cannabis acquired in August.

While Page will no doubt be a positive addition to Aurora's management team, his new position isn't the likely catalyst for the stock's big move today. Instead, we're probably just seeing the natural ebb and flow of a volatile stock that operates in a volatile industry.

Marijuana plant underneath lights

Image source: Getty Images.

So what

For the most part, Aurora Cannabis stock's big drop yesterday and the subsequent nice gain today are much ado about nothing. The fact is that nothing has materially changed for Aurora's business prospects this week.

Sure, Aurora Cannabis reported its fiscal year 2019 first-quarter results on Tuesday. But the seemingly fantastic revenue and earnings growth involved some smoke and mirrors. Aurora's 260% year-over-year revenue increase stemmed primarily from the company's acquisitions. And the 2,862% -- yes, that percentage is correct -- jump in earnings came entirely from investment gains.

Aurora would have had a huge net loss without the positive impact of those gains. However, that's nothing to get worked up about, either. The company cranked up its spending dramatically in Q1. But it did so in preparation for the Canadian recreational marijuana market that opened on Oct. 17, 2018, and for continued expansion in international medical marijuana markets. Both are good reasons to absorb a temporary loss. 

Now what

The key things to watch with Aurora are the developments that truly impact its prospects. Stabilization of supply chains for the Canadian recreational marijuana is one example. Germany's issuance of licensing for domestic medical cannabis production is another. A significant partnership with a major company outside of the cannabis industry would also be tremendously important for Aurora.

As the questions about the growth of the global cannabis industry and Aurora's role in this growth are answered, the stock's volatility will diminish. In the meantime, more major swings both up and down are likely in store for Aurora Cannabis in the weeks and months to come. Some of these gyrations could be warranted, but not necessarily all of them. 

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.