Marijuana stocks burst on the scene over the last serval years and have become even more prominent and legitimate since Canada in October 2018 became the largest country to legalize recreational weed. Despite growing sales and wider legalization, many pot stocks have been insanely volatile as Wall Street and investors try to wrap their heads around the marijuana industry.
Illinois is the latest state to legalize marijuana for recreational use, though sales won’t start until January 1. Marijuana is now recreationally legal in eleven states and D.C. Meanwhile, while medical marijuana is legal in over 30 states and completely legal in Canada for both recreational and medicinal use. And this has all happened relatively quickly, since Colorado and Washington were the first states to approve recreational use in 2012.
Last year, investors reportedly poured over $10 billion into the North American marijuana industry. Overall, the legal weed business is projected to skyrocket from $9 billion in 2017 to an estimated $32 billion by 2020—though estimates vary. Plus, massive firms such as Scotts Miracle-Gro SMG, Molson Coors TAP, GW Pharmaceuticals PLC GWPH, Altria MO, and Corona brewer Constellation Brands STZ have all made bets on the future of legalized marijuana in some form or another.
Inventors should also note that there are a few marijuana industry ETFs, such as ETFMG Alternative Harvest ETF MJ. Others might want to take a look at marijuana REITs such as Innovative Industrial Properties IIPR, which controls more than 1.3 million square feet of growing facilities. On top of that, Aurora Cannabis, Tilray TLRY, Cronos Group CRON, and Canopy Growth CGC make up the so-called big four, pure-play pot stocks.
We are also coming off a “Strong Week for Marijuana Stocks,” according to our Zacks Marijuana Innovators portfolio manager David Borun. With all this said, there are still many legal grey areas in the U.S. and this is likely to remain the case until marijuana is legalized on the federal level.
Aurora Cannabis ACB
Edmonton, Canada-headquartered ACB is a highly diversified marijuana firm that operates within the broader wholesale and retail distribution sector of the legalized weed industry. Aurora Cannabis has a market cap of $5.5 billion and holds an average daily trading volume of 11.5 million. The firm is one of the largest cannabis companies, with operations and sales across 24 countries for both consumer to medial use. Aurora has also grown over the last serval years through acquisitions.
Last quarter (Q3 fiscal 2019), the firm’s consumer revenue popped 37% quarter-over-quarter, with Medical up 8%. Investors should note that these two categories both accounted for roughly 50% of sales each. Overall, ACB’s International Medical unit jumped 40% from Q2 with its medical patient base up by 5% and 69% from the year-ago period to 77,136 active registered patients.
On top of that, overall Q3 revenue surged 20% from Q2 2019 and 305% from Q3 2018 to reach $65.1 million. The company also produced 99% more kilograms in Q3 than it did in Q2, but only sold 31% kilograms. The difference in increased production against sales growth could indicate a larger problem going forward.
Yet Aurora is likely increasing production in anticipation of wider legalization. This includes the so-called legalization 2.0 in Canada, which is projected to include popular derivatives like edibles, concentrates and other offerings that weren’t legalized last year. “Aurora remains focused on having vapes and certain edibles ready for launch under new regulations in the Canadian consumer market which are expected toward the end of the calendar year,” the firm wrote in a statement last quarter. “
“With production ramping up, the Company continues to scale up manufacturing capacity, with innovation and technologies aimed at reducing time from harvest to market. The Company anticipates that increased processing, packaging and delivery efficiencies in Q4 and beyond will accelerate availability of product.”
Q4 Outlook & Beyond
Looking ahead, our current Zacks Consensus Estimates call for Aurora’s Q4 2019 revenue to skyrocket 432% from the year-ago period to touch $79.0 million—based on four total estimates. This would also represent a similar 21% sequential expansion from Q3 2019. Peeking further ahead, Q1 2020 revenue is projected to pop 18% from our fourth-quarter estimate to hit $93.2 million.
The company’s full-year fiscal 2019 revenue is expected to climb from $55.2 million in 2018 to reach $192.6 million. This would represent roughly 250% expansion that would see it outpace 2018’s 205% full-year growth. Then, Aurora’s 2020 revenue is projected to climb 150% above our current-year estimate to reach $487.4 million.
At the bottom end of the income statement, ACB is projected to post an adjusted quarterly loss of $0.02 per share. This would mark a significant fall from the prior-year period. This year-over-year downturn is expected to be even larger for the full-year, with Aurora predicted to post an adjusted full-year loss of -$0.23 a share. The marijuana company is also projected to post another adjusted loss in 2020.
Aurora is currently a Zacks Rank #4 (Sell), based on its negative earnings estimate revision activity. With that said, investors and Wall Street are likely focused much more on top-line growth as the Canadian company ramps up production, distribution, and nearly everything else in the nascent marijuana industry.
Pot stocks have been hugely volatile and there is still much uncertainty regarding U.S. federal legalization. Nonetheless, investors who can handle the inherent risks could be rewarded in the long-run if things break the right way.
ACB stock is currently trading at roughly $6.00 per share. Clearly, investors shouldn’t consider buying a stock just because it’s “cheap.” But Aurora does appear to be in a strong position to expand within a larger growth market, which is still largely untapped.
Aurora is scheduled to report its fourth quarter and fiscal 2019 results after the closing bell on Wednesday, September 11. The firm’s conference call is set for Thursday morning. Make sure to come back to Zacks for a complete breakdown of Aurora’s Q4 results.
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Molson Coors Brewing Company (TAP) : Free Stock Analysis Report
Constellation Brands Inc (STZ) : Free Stock Analysis Report
GW Pharmaceuticals PLC (GWPH) : Free Stock Analysis Report
The Scotts Miracle-Gro Company (SMG) : Free Stock Analysis Report
Altria Group, Inc. (MO) : Free Stock Analysis Report
Innovative Industrial Properties, Inc. (IIPR) : Free Stock Analysis Report
Aurora Cannabis Inc. (ACB) : Free Stock Analysis Report
Tilray, Inc. (TLRY) : Free Stock Analysis Report
Canopy Growth Corporation (CGC) : Free Stock Analysis Report
Cronos Group Inc. (CRON) : Free Stock Analysis Report
ETFMG Alternative Harvest ETF (MJ): ETF Research Reports
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