Is Aurora Cannabis a Buy?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="There are as many reasons to be bullish on cannabis stocks as there are reasons to be bearish. With the full legalization of the Canadian market in October of last year, cannabis seems poised to go much more mainstream in the years ahead. The highest industry estimate from a mainstream Wall Street firm is Stifel's recent $200 billion estimate for global legal cannabis sales by 2030. That would be up roughly 13 times from the $15 billion estimated global sales for 2019!” data-reactid=”11″>There are as many reasons to be bullish on cannabis stocks as there are reasons to be bearish. With the full legalization of the Canadian market in October of last year, cannabis seems poised to go much more mainstream in the years ahead. The highest industry estimate from a mainstream Wall Street firm is Stifel’s recent $200 billion estimate for global legal cannabis sales by 2030. That would be up roughly 13 times from the $15 billion estimated global sales for 2019!

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="And yet there are just as many reasons for caution on pot stocks. For one, it's still very early innings in the legal cannabis industry, and a whole host of things can go wrong. Even in Canada and legal U.S. states like California, the legacy black market is still thriving due to the higher prices on legal weed from high state taxes. That may be contributing to the oversupply in the Canadian market that has recently sent pot prices tumbling. Deepening this problem is the fact that pot companies are subject to some unique and bizarre accounting rules, which could mean that past profits may have to be written down if retail prices keep falling, in addition to current results.” data-reactid=”12″>And yet there are just as many reasons for caution on pot stocks. For one, it’s still very early innings in the legal cannabis industry, and a whole host of things can go wrong. Even in Canada and legal U.S. states like California, the legacy black market is still thriving due to the higher prices on legal weed from high state taxes. That may be contributing to the oversupply in the Canadian market that has recently sent pot prices tumbling. Deepening this problem is the fact that pot companies are subject to some unique and bizarre accounting rules, which could mean that past profits may have to be written down if retail prices keep falling, in addition to current results.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Additionally, who knows when the U.S. will finally get its act together regarding national legalization? Until it does, companies have to navigate a patchwork of different state regulations, as well as the fact that U.S. companies can't ship cannabis across state lines. Many pot companies have thus made very expensive acquisitions in order to expand their reach in certain U.S. states, setting up the potential for future goodwill writedowns.” data-reactid=”13″>Additionally, who knows when the U.S. will finally get its act together regarding national legalization? Until it does, companies have to navigate a patchwork of different state regulations, as well as the fact that U.S. companies can’t ship cannabis across state lines. Many pot companies have thus made very expensive acquisitions in order to expand their reach in certain U.S. states, setting up the potential for future goodwill writedowns.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Nevertheless, if you're one of the brave ones looking to take advantage of the current skepticism in pot stocks, you might want to consider Aurora Cannabis (NYSE: ACB). Aurora is the market leader by production capacity and the most widely held stock on the investing app Robinhood, and there are a few good reasons why it sticks out among the big cannabis players.” data-reactid=”14″>Nevertheless, if you’re one of the brave ones looking to take advantage of the current skepticism in pot stocks, you might want to consider Aurora Cannabis (NYSE: ACB). Aurora is the market leader by production capacity and the most widely held stock on the investing app Robinhood, and there are a few good reasons why it sticks out among the big cannabis players.

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Aurora Cannabis is set for growth. Image source: Getty Images.

The leading producer

Aurora has been the most successful cannabis company in growing its production capacity, with funded capacity set to reach 625,000 kg annually in the next couple years. In the company’s most recent quarter, Aurora sold between 25,000 and 30,000 kg, or a little less than 20% of its full potential, so there should be massive growth in the next couple years as this capacity comes online.

But it’s not just the amount of cannabis that Aurora can produce, it’s how well the company executes. Aurora is a bit different from other cannabis companies in that it has its own custom, large-scale Sky facility design. Sky facilities are equipped with a glass roof and highly automated infrastructure, which allows for massive production with relatively lower labor requirements, and a highly controllable environment that limits crop loss. For instance, Aurora’s older Mountain facility produces about 4,800 kg and requires about 125 people; however, the new Sky facility can produce 100,000 kg/year, or 20 times that of Mountain, but only requires 380 people, or three times Mountain’s labor requirements.

Aurora is constructing two more Sky-model facilities, Aurora Sun and Aurora Nordic part two, which will be even bigger and support a combined 270,000 kg per year in production. The scale benefits from these massive facilities should send Aurora’s costs below $1.00 per gram, according to management.

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