Aurora Cannabis (NYSE:ACB) cant expand into the U.S. marijuana market. At least, it cant do so and retain its listings on the New York Stock Exchange and Toronto Stock Exchange as long as marijuana remains illegal at the federal level in the U.S.
But two of Auroras peers, Canopy Growth and Tilray, are already moving into the U.S. cannabis market in a different way. Hemp is now legal in the U.S. thanks to the passage of the 2018 farm bill in December. Canopy is building a hemp industrial park in New York to produce hemp-based cannabidiol (CBD). Tilray recently acquired Manitoba Harvest, which has hemp food products in around 13,000 U.S. stores.
Aurora Cannabis Inc. (NYSE: ACB) is close to being awarded the maximum number of lots for domestic cannabis production in Germany. The deal's completion is subject to the finalization of an appeals process next week; Canaccord Genuity considers the process a moderate-to-high risk.
First Publicly Traded Cannabis Stock Up 2,139% Since Market Debut
So far, however, Aurora hasnt announced any details about expanding into the U.S. When will the company make its move?
You could say that Aurora has already indirectly jumped into the U.S. marijuana market. Last year, the company spun off Australis Capital as a separate entity. Australis Capital focuses on investing in cannabis-related businesses in the U.S.
Australis has already lined up several U.S. cannabis partners. It completed investments in Nevada-based Body and Mind in November 2018. In January 2019, the company invested in Folium Biosciences, the largest vertically integrated producer, manufacturer, and distributor of hemp-derived phytocannabinoids in the U.S. Australis followed up in February by acquiring 100% of Mr. Natural Productions, a medical and recreational cannabis brand based in California.
Operating in the U.S. isnt a problem for Australis Capital. The stock is listed only on the Canadian Securities Exchange (CSE), which doesnt prohibit marijuana companies from conducting business in the U.S., and trades over-the-counter in the U.S. But while Australis Capital is closely aligned with Aurora Cannabis, the two companies must operate independently to avoid issues related to Auroras stock listings.
Aurora executives stated in the past that they were eager to expand into the U.S. hemp market. CEO Terry Booth even expressed his view that the hemp market would ultimately be larger than the adult-use recreational marijuana market. But after the 2018 farm bill became law in the U.S., legalizing hemp in the process, Aurora took no immediate action.
Terry Booth was asked about Auroras U.S. hemp strategy in the companys second-quarter conference call in February. His response was that the company would “enter when its proper to enter, and when its legal to enter into the United States market.”
You might wonder why Aurora would be so hesitant about the U.S. hemp opportunity while Canopy and Tilray have jumped in headfirst. The companys slowness appears to stem from some uncertainties that have yet to be resolved with the U.S. opportunity. Terry Booth noted during the Q2 conference call that there is “a bit of legal confusion in the states” regarding CBD distribution.
Dont think that Aurora Cannabis doesnt have something up its sleeve with respect to the U.S. hemp market, though. Chief Corporate Officer Cam Battley hinted during the companys conference call in February that “we dont want to give away too much of our strategy just yet.”
Its possible, and even likely, that a key part of that strategy involves Nelson Peltz. Aurora announced in March — four weeks after its Q2 conference call — that Peltz was joining the company as a strategic advisor to help line up partnerships.
Canopy Growth Corp., then known as Tweed Inc., listed on Torontos TSX Venture Exchange on April 4, 2014 via a reverse takeover of a capital pool company. Shares closed that first day at C$2.59 and have gained over 2,139% since then to C$58 Thursday morning. If you were lucky enough to sell at its high of $76.91 in October, your return would have been 2,869%
Peltz stated at the time that he intended to assist Aurora through “potential engagement with mature players in consumer and other market segments.” Most of the companies with which the billionaire investor has interacted closely with in the past are based in the U.S. Aurora could be counting on Peltz to find a partner that would enable entering the U.S. hemp market in a quick and major way.
The main question for Aurora Cannabis with its expansion into the U.S. hemp market is not if, but when. Discussions and negotiations with prospective partners take time.
Aurora chairman Michael Singer told BNN Bloomberg recently that an announcement of partnerships could be on the way within the next six months. Singer said that Aurora is in active talks with several companies, including some in the consumer-packaged goods and beverage industries.
The bottom line is that Aurora Cannabis is coming to America in a major way. Its just not in as big of a rush to do so as some investors might prefer.
If you’re asking the question, “what is Wall Street smoking these days?”, you’re not alone. But if it’s green you’re after, look no further than the price charts of this trio of marijuana stocks. Let me explain.
With a gravity-defying broader market now approaching all-time-highs off late December’s almost ubiquitous corrective bottom, it’s enough to give pause to even the most ardent and die-hard bullish investors. Then there are marijuana stocks.
The budding field of marijuana and cannabis are of course poised for huge secular growth. Surging demand for both medicinal and recreational products amid increased legalization — plus in-tow social acceptance and more cleaver and easy ways to enjoy those substances that would leave Cheech and Chong and Jeff Spicoli scratching their heads— are a big business opportunity to say the least.
Still, as with any new trend which has caught a nice buzz from Wall Street’s sell-side promoting dreamy and easy-going path to profits, the reality is there will be very volatile winners and losers in cannabis stocks. Bearing that in mind, let’s separate the chaff from the wheat or in this case, the bull from the bear and explore three marijuana stocks.
My first of two marijuana stock buys are shares of Aurora Cannabis (NYSE:ACB). ACB stock is on InvestorPlace’s Josh Enomoto’s short list of cannabis buy recommendations due to the company’s smart-looking acquisition strategy that’s helping leverage its position within the medicinal side of the business.
On the price chart I’m inclined to digress with Josh regarding an inevitable correction in ACB stock after rallying about 70% on the year. Unlike a marijuana stock like Cronos (NASDAQ:CRON) or Canopy Growth (NYSE:CGC) which have seen big gains in 2019; ACB stock’s big picture shows a name that’s done a good deal more work consolidating its gains in a very large base.
As we can see on the weekly view of Aurora Cannabis, shares are actually trading below where they were kicking off 2018. That’s interesting, but not necessarily bullish. What’s making the case for seeing higher prices in ACB stock are back-to-back corrections which have formed a slightly-irregular “W” or high-level double-bottom pattern.
With this marijuana stock now consolidating quietly in a small three-week long handle pattern wedged in-between the 50% and 62% retracement levels, it’s time to consider going long ACB stock.
My recommendation is to buy shares above $9.48 as ACB stock takes out the high of the formation’s weekly doji from two weeks ago.
I expect an upside resolution out of the handle will lead to a quick challenge of last fall’s all-time-high of $12.53. But to avoid any potential, “what was I smoking” situations, using a stop loss beneath the doji low makes good sense from both a money management and technical perspective.
Scotts Miracle-Gro (NYSE:SMG) is an old-school, household name best known for its lawn and gardening products. But in today’s budding grass market, Scotts is also the industry’s largest hydroponics supplier and my second buy recommendation.
Scotts was actually given the green thumbs-up of approval by this strategist about three weeks ago. The cannabis stock’s pick-and-shovels position for capitalizing on industry growth, fundamentals that don’t require smoking any product to appreciate their value, as well as a nicely-positioned SMG stock chart were ‘nearly too much to resist.’
Fortunately, an above-the-market entry never triggered immediately in front of a fairly significant single session smoking of nearly 6% with no news to account for the bullish buzz-killer. But shares of this cannabis stock did recover nicely off 38% support established over 2018’s large correction.
Now with SMG stock challenging the 50% line once more, I’m seeing this glass as only half full on the price chart. The technical outlook is Scotts Miracle-Gro shares are in position to break out to new highs for 2019 and eventually challenge the all-time-highs set in January 2018.
The recommendation for going long this marijuana name is to be ready to purchase shares once again above $83.23. I’d suggest an initial blended stop-loss below $79.75 to keep exposure minimized off and on the price chart.
I’m reminded of the saying, “Fool me once, shame on you. Fool me twice, shame on me. Fool me three times, shame on both of us” when looking at the price chart of CGC. And there’s good reason for looking at this marijuana stock a bit differently than in days past.
In January shares of the Canadian-based marijuana outfit failed to break out successfully from a handle consolidation. Then to make matters worse, CGC stock tried to rally out of larger triangle pattern only to fail yet again. Both occasions got the better of my enthusiasm for this marijuana stock.
Should I have seen it coming? Maybe. More importantly, it’s time to respect this marijuana stock’s bearish offenses have occurred despite enviable supports like a strategic partnership with beverage giant Constellation Brands (NYSE:STZ) and the type of growth that should make bulls salivate.
As mentioned, the marijuana industry is going to have losers and winners. And with one-time market cap leader Tilray (NASDAQ:TLRY) already looking like a technical casualty, that reality is a wake-up call. It’s suggesting CGC, notwithstanding its good looks off the chart, could be another high-profile victim.
My recommendation is short this marijuana stock below $42 as shares are breaking beneath flag support. I’d give this position some room with an initial stop-loss above $46.50. That represents a recovery back above the 62% level and through the apex of the triangle.
On the downside, given the failures CGC stock could be on its way towards forming a large double-bottom base that could challenge the December low near $25. And if history does repeat or simply rhymes, last fall’s triangle is a reminder of what a tasty edible for bears can look like.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.