As we are just a few days away from the cannabis 2.0 launch in Canada, many cannabis investors are looking for any glimmer of hope to get them out of one of the worst bear markets the sector has ever seen. We saw selling intensify this month as the sector plunged to levels not seen since 2017 on growth and revenue concerns for many of even the biggest companies within the sector.
This is starting to look like a classic case of investors getting overly excited about something only to find out that it wasn’t as good as they might have thought. During any bear market though, there are always companies that decline for a reason, and then there are companies that are just dragged down with the entire sector as investors speculate.
One company we think that’s worth taking a look at is Aurora Cannabis when it comes to the upcoming October 17th launch of the cannabis 2.0 market in Canada.
Not only is Aurora Cannabis one of the largest and most globally diversified cannabis companies in the world having a presence in 25 countries, but Aurora Cannabis has also been preparing for the cannabis 2.0 launch in Canada for some time now. There has been some recent controversy floating around about vape related deaths across America which have only added to the negativity within the sector, but Aurora has put a great amount of emphasis on edibles and this is a segment of the market that we think they could shine.
Diving into some recent statistics we always monitor market trends and there seems to be a shift away from dried flower into concentrates. Since 2015 concentrate sales in the United States have grown by 200% and made up 39% of total sales in 2018. During the same period, the sales for dried flowers decreased from 66% down to 40% over the same time interval. This is very promising for the market as we expect this trend to continue.
The use of concentrates can be deemed as cleaner and healthier compared to burning dried flower. With the recent controversy around vaping right now, many consumers are moving towards edibles and there are a few companies that have really shifted their focus. Details from a study conducted by research firm Deloitte found that half of the individuals surveyed were likely to try cannabis-infused cookies. On top of that 50% were likely to try cannabis-infused gummies.
Aurora is setting themselves up to capitalize on the edibles market and they have been granted a processing license from Health Canada for their Aurora Air facility. This facility will produce edibles including chocolates and gummies, which should hit the market by December of this year.
The thing we like about edibles is the fact that they don’t carry the stigma that vaping does. These higher-margin products could drive revenue growth over the coming quarters and support Aurora’s goal towards profitability. During these times, the sector is in dire need of support and this could be one of the first catalysts we see emerge. Will Aurora hold its ground during these tough times?
Aurora remains one of our top stocks to watch for 2019 and beyond.
(Disclosure: The author owns shares of Aurora Cannabis)
ACB shares were trading at $3.76 per share on Tuesday afternoon, up $0.25 (+7.12%). Year-to-date, ACB has declined -24.19%, versus a 21.44% 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...