It’s been absolute misery for shareholders of Aurora Cannabis (NYSE:ACB), as nothing seems to be going right. Since hitting about $10 a share in March, the price has gone on to reach a lowly $2. Meanwhile, the market capitalization is now at $2.2 billion.
Of course, much of the cannabis sector has been in a relentless bear market, as well. Just look at companies like Tilray (NASDAQ:TLRY), Canopy Growth (NYSE:CGC) and Cronos Group (NASDAQ:CRON). They have all suffered huge losses for their shareholders during fiscal year 2019.
For the most part, the selloff is the result of the disappointment in the Canadian market. Keep in mind that the government has been slow to permit new retail outlets and crack down on black market activities.
However, as we go into the New Year with many stocks fetching high valuations, the cannabis sector does look like an interesting value play. And yes, one of the stocks to consider is Aurora Cannabis.
So, let’s take a look at why now is a good time to be getting in on the stock.
Aurora Cannabis Global Platform
While the Canadian market is essential, the fact is that the rest of the world is moving toward liberalization of cannabis laws. This certainly bodes well for Aurora Cannabis because among the cannabis companies, it has one of the most expansive global footprints. Aurora is active on five continents across 25 countries. There are also 15 global production facilities and the company is a leader in the medical cannabis segment in Europe and Latin America.
Actually, in this part of the market, Aurora Cannabis has more than 40 highly-educated researchers — who have conducted a myriad of clinical trials and case studies. The company also has a patient roster of about 91,408, which increased by 8% during the latest quarter.
Even though Aurora definitely has its issues, they seem to be baked into the stock price. Let’s face it, the investor sentiment is downright awful!
Take a look at a report from GLJ Research, in which analyst Gordon Johnson started coverage on Aurora Cannabis with a “sell” rating. He also predicted a price target of $0 for the next two years! For the most part, he believes that the company will not have the financial wherewithal for the downturn in the Canadian market.
Nonetheless, this analysis seems mostly alarmist. Again, Aurora is a global operation — and besides, the Cannabis 2.0 market should be a nice catalyst in Canada anyway. In the meantime, the company is taking swift action to restructure its operations. Some of the moves include settling its 5% convertible debenture due in March 2020; raising $124 million in equity; and cutting capital costs by over $190 million.
Aurora Growth Catalysts
The Cannabis 2.0 market could be a multi-billion dollar opportunity. Currently, Aurora has a variety of CBD and THC edibles and vape offerings. The selection of edible treats extends from chocolates, baked goods, mints and gummies. The company, which produces these products in state-of-the-art facilities, is expected to begin selling them in January. According to a recent corporate update, Aurora Cannabis has indicated that it “has built inventories to support an ongoing replenishment strategy to help ensure consumers across Canada have access to a diverse portfolio of high-quality derivative products.” As part of this effort, Aurora has an education campaign, called “Ready for Edibles,” which focuses on responsible consumption of cannabis edibles.
Furthermore, there is another catalyst for the company that could be much larger: The CBD market in the U.S. Because of the Agriculture Improvement Act of 2018, there are fewer legal restrictions on this substance.
In fact, according to research from New Frontier Data, the market is forecasted to hit a whopping $22 billion by 2022. As for Aurora, it should get a piece of the action. The Canadian cannabis company has a majority ownership position in Hempco, which is a top processor and distributor of CBD products.
It also seems like a good bet that the company will also leverage its platform in the U.S. and look at more acquisitions.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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