CAN AURORA CANNABIS MAKE YOU A MILLIONAIRE?
Once the 𝗦𝗘𝗖𝗢𝗡𝗗 𝗕𝗜𝗚𝗚𝗘𝗦𝗧 cannabis stock by market cap, Aurora has suffered more than any other company in the industry over the past 18 months! The stock has come crashing down after making a string of 𝗧𝗘𝗥𝗥𝗜𝗕𝗟𝗘 𝗗𝗘𝗖𝗜𝗦𝗜𝗢𝗡𝗦 including overpriced acquisitions, excessive stock dilution and overproduction issues! The stock is now 90% from its all-time high having been abandoned by its once adoring investors.
“𝘽𝙚 𝙜𝙧𝙚𝙚𝙙𝙮 𝙬𝙝𝙚𝙣 𝙤𝙩𝙝𝙚𝙧𝙨 𝙖𝙧𝙚 𝙛𝙚𝙖𝙧𝙛𝙪𝙡”
Is Aurora Cannabis now the perfect example of where to apply this piece of stock market wisdom? 𝗢𝗥 is the company a sinking ship. Knowing the answer to this question could make investors a lot of money! Let’s try and figure it out.
REASONS TO TAKE A RISK ON AURORA CANNABIS:
✔ Aurora has one of the largest marijuana growing capacities in the world.
✔ The company has production, export agreements and research ongoing in over 25 countries giving the business more international exposure than every other cannabis company in the world.
✔ The previous management responsible for the poor decisions that have plagued the company have left the business and the new exec team have made financial progress by slashing expenses and reducing cash burn.
✔ Aurora’s overproduction of cannabis was partly caused by Canada’s lottery system for awarding dispensaries with licenses. The Canadian regulator recently replaced this system and this has allowed retail dispensaries to shoot up from 24 to 150 from Sep 2019 – Sep 2020.
✔ Aurora has the largest share in the Canadian medicinal cannabis sector. Margins for medicinal marijuana are better than retail cannabis (59% vs 38%). As the medicinal market grows, Aurora’s overall margins will improve.
✔ Aurora has been vocal about pivoting towards supplying “Cannabis 2.0” products including edibles, beverages & topicals. These higher-margin products should be able to help Aurora reach profitability sooner.
✔ The recent US election should accelerate the legalisation of cannabis in the States and this should provide a tailwind to the entire cannabis sector.
✔ Aurora is cheaper than almost all it’s peers on a price-to-sales ratio. The cannabis industry currently has razor thin margins however as the industry matures, companies will get better at managing production and this will benefit Aurora thanks to their large amount of revenue.
REASONS TO AVOID AURORA CANNABIS:
✖ Aurora is the least profitable cannabis company out there right now based on earnings per share & free cash flow (see table below)
✖ Right now, the company has around $150m in cash & investments versus roughly $500m in liabilities which leaves Aurora genuinely at risk of going bankrupt as they walk this tightrope.
✖ Over the past 5 years, the company has consistently issued more & more shares to fund their expansion (all of which has failed). Due to their current financial problems, It’s likely that Aurora will continue to raise money via future share offerings at the expense of their shareholders.
✖ For some time, Aurora has focused on becoming the largest producer of dried cannabis products. Unfortunately for Aurora, this area of the cannabis sector is struggling most with competition from the black market.
✖ As Aurora pivots towards edibles & beverages, they will be taking on stiff competition from Canopy & Aphria. Both companies currently dominate the space and each of have better finances and partnerships than Aurora.
✖ Aurora’s woeful finances has meant that the company has had to reduce R&D spending by 66% this year. This will hinder Aurora’s future growth and allow competitors to rapidly outgrow them over the next 12-24 months.
There’s certainly 𝗔 𝗟𝗢𝗧 𝗧𝗢 𝗖𝗢𝗡𝗦𝗜𝗗𝗘𝗥 before investing in a company like Aurora Cannabis. I’ve listed 6 very large risks associated with the company above and quite frankly I could have kept going! 𝗧𝗛𝗘𝗥𝗘𝗙𝗢𝗥𝗘, investors with a low risk appetite should probably avoid Aurora. At least, until the company can prove that they’re out of trouble and profitability is in sight.
If, however you are willing to take 𝗖𝗔𝗟𝗖𝗨𝗟𝗔𝗧𝗘𝗗 𝗥𝗜𝗦𝗞𝗦 - Then buying shares of Aurora whilst sentiment remains extremely low could well be a very lucrative move. Despite the risks associated with this stock, the reward potential is huge if Aurora can get its act together… Starting with a 1200% increase back to 𝗔𝗟𝗟-𝗧𝗜𝗠𝗘 𝗛𝗜𝗚𝗛𝗦!
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