Aurora Cannabis (ACB) never fails to make headlines and recently there’s been quite a bit of negative news released from the company.
Yet, a fascinating fact is the number of investors who are still buying shares of ACB.
For the past few years, Aurora Cannabis has been especially popular among millennials. When we started analyzing cannabis stocks in 2018 on our youtube channel, ACB was the stock that attracted many of our viewers. And in 2019, online broker Robinhood said ACB was the most popular stock among millennials.
We thought that after the disappointing 2019 cannabis stocks had, and the negative impact of the Covid-19 crisis, investors would have lost interest in the company, as it has only disappointed shareholders quarter after quarter, and shares have fallen from $10 to below $1. However, we were wrong.
In a recent interview with Jim Cramer on CNBC, Robinhood’s Co-CEO named the top 10 stocks that were most bought on the platform in March, and ACB was one of them.
So why does ACB still have such a large fanbase despite their dismal performance?
When it comes to millennials, we know that many of them have never experienced a real market crash, or even a sustained decline ( (the market had the longest bull run ever from 2009-2020). So, we can assume that they thought that when the market plummeted in February and March of 2020, it was a significant stock buying opportunity.
And they weren’t necessarily wrong. The Coronavirus caused the market to crash 35% but in just a few weeks after the S&P touched 2,191, we saw the market rally more than 20% due to unprecedented amounts of stimulus from the US government and the Federal Reserve.
However, ACB has not sustained the rally like the rest of the stock market. It currently trades at about $0.70, which is roughly the price it was trading at in mid-March.
Unfortunately, millennials often rush into buying the “hot new asset” (i.e. Bitcoin at $20,000) without too much consideration. They tend to chase above-average returns and invest blindly into companies that may or may not be fundamentally sound.
And when it comes to ACB, there is a lot to be concerned about.
Last week ACB announced that they would be moving towards a “share consolidation,” which in simple terms means a reverse stock split. Though this action prevents ACB from getting delisted on the NYSE, the higher share price makes the stock appealing to short sellers again. Therefore, it wasn’t surprising to see their share price plunge 20% on this news.
The company also continues to lose substantial amounts of money on an operating basis, it only has CA$205 million and anticipated (at the end of Dec. 31, 2019) that it would face close to CA$374 million in liabilities over the next 12 months, and there’s the growing possibility of a writedown.
For the millennials sake, and all ACB investors, we hope to see the company maneuver through this challenging economic time successfully. However, if ACB fails to do so, their financial well-being could be in jeopardy.
(Disclosure: The author is long ACB)
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ACB shares fell $0.00 (-0.68%) in after-hours trading Wednesday. Year-to-date, ACB has declined -66.67%, versus a -12.78% 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...
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