The entire cannabis sector right now is in shambles and it seems that when things get worse, everyone and their brother have something negative to say about the sector. Speculators start revising their estimates downward and more and more negativity pile on. We have seen that other the past few months for the entire sector valuations have faced decline after decline and many wonders when is the perfect time to start buying again. The truth is that no one really knows when we will arrive at the bottom but one thing we can do is focus on companies who are diversified and have what it takes to weather the storm. In this case, we are focusing on Aurora Cannabis, one of the largest cannabis companies in the world.
Aurora Cannabis has attracted a massive millennial fanbase to become the most popular stock on the Robinhood app. Popularity alone could not help the stock in the current market we are in and Aurora has slid well over 50% from its highs of $16 to trade just over $5 per share. Aurora right now is flirting with a critical support level that we only saw once after legalization when the market completely tanked. Many believe that Aurora will hover around $5 until the next catalyst moves the market one way or the other but there are also many bears that think Aurora and the entire sector is heading lower. This is a possibility but we want to take a look at Aurora today to find out why we think the stock could be worth picking up.
First off we can’t argue with production capacity. Aurora Cannabis should be producing 650,000 kgs of cannabis by 2020 but production capacity alone is not the thing we like the most about Aurora. Aurora will be producing its cannabis for much cheaper than its competitors with a target of 1$ per gram or less. Aurora is well on their way to accomplishing that as we saw in their last quarter, Aurora reported their costs fell from $1.42 to $1.14. This made Aurora the cheapest producer next to its competitors. Aurora is also doing very well when it comes to margins with gross profit coming in at 58% last quarter. In the short term, these numbers will really help Aurora generate cash.
Another thing to take into account is the 84,000 medical patients that aurora currently has and this number should continue to grow. but what investors should be more excited about is the global opportunity at hand. Aurora will be able to provide cannabis to countries like Germany where Aphria has already shown almost 100 million in revenues for one single quarter. Aurora is set to dominate the European market with its two recently completed GMP compliant facilities. We are barely touching the surface of the global cannabis market as it still sits in its infancy and Aurora Cannabis is set to capitalize immediately.
We love Aurora Cannabis for its global growth opportunity among many other things and still believe that the patient ones will be rewarded immensely. Now, whether that starts to happen now or in a few years no one can truly know, but Aurora is a company whose stock we like the cheaper it gets.
(Disclosure : The author owns shares of Aurora Cannabis)
ACB shares were trading at $4.11 per share on Wednesday afternoon, down $0.04 (-0.96%). Year-to-date, ACB has declined -17.14%, versus a 18.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...