3 Great Reasons to Buy Aurora Cannabis Stock – Yahoo Finance

3 Great Reasons to Buy Aurora Cannabis Stock - Yahoo Finance
Aurora Stock: Why did Two Billionaires Just Invest in Aurora Cannabis?
Better still, Auroras stock is poised to deliver even more gains to investors in the years ahead. Heres why.

Estimates for the size of the global cannabis market continue to grow larger. Investment firm Cowen now expects worldwide cannabis sales to reach $75 billion by 2030, up from a previous forecast of $50 billion by 2026. Bank of America, meanwhile, believes the marijuana market could one day reach $166 billion in annual sales. And Canopy Growth (NYSE: CGC) Co-CEO Bruce Linton, perhaps unsurprisingly, has the most optimistic prediction of all: He believes cannabis could eventually disrupt markets totaling $500 billion.

The YoY growth in the figures isnt fully comparable because the next four quarters include sales estimates from recreational cannabis. Recreational cannabis was legalized in October 2018. The last four quarters dont include the full impact of the sales estimates from recreational cannabis.

Aurora Cannabis: What to Expect in the Next Four Quarters

While no one knows for sure just how large the cannabis market will ultimately become, one thing is certain: Products derived from marijuana and hemp are enjoying rapidly increasing demand across the world. People are using marijuana and cannabidiol (CBD) to treat a variety of ailments, both medically and recreationally. As such, cannabis has the potential to disrupt massive industries such as alcohol, tobacco, and pharmaceuticals.

A more comparable sales figure would be the sequential sales growth in each quarter. In the fourth quarter, the sales are expected to grow 80% to 117 million Canadian dollars. The companys sales are expected to slow down to 7% sequentially followed by 19% and 20% sequential sales growth.

Having built a formidable position in marijuana production, Aurora Cannabis stands to benefit more than perhaps any other company from this booming demand for cannabis.

In the next four quarters, Aurora Cannabis is expected to report total sales of 577 million Canadian dollars, which will increase significantly from 168 million Canadian dollars in the last four quarters. The increase would translate into sales growth of ~243% YoY (year-over-year).

Of all the publicly traded marijuana producers, Aurora Cannabis has the highest peak production capacity by far. Thanks to its purchases of MedReleaf, CanniMed, ICC Labs, and a host of other acquisitions, Aurora is on track to produce more than 625,000 kilograms of cannabis annually by 2020. Among Auroras rivals, only Canopy Growth can even claim 500,000 kilograms in peak production potential.

Aurora Cannabis has broadly been flat since its earnings on May 14. However, the stock has returned 54%. The stock has outperformed the Horizons Marijuana Life Sciences ETF (HMMJ), Cronos Group (CRON), and Canopy Growth (WEED), which have returned 32%, 40%, and 53%, respectively.

As the largest marijuana producer, Aurora Cannabis will enjoy scale advantages over its smaller rivals. It should generate higher profit margins, as it will be able to spread its costs over a larger revenue base. It will also be in a stronger position to sign lucrative supply deals with wholesalers and governments, particularly in international markets, where Aurora has a leading presence.

With the cannabis industry taking shape in Canada and around the globe, were watching cannabis companies sales closely. Well discuss the sales estimates for Aurora Cannabis (ACB) for the next four quarters.

Additionally, Auroras scale should allow it to become one of the marijuana industrys lowest-cost producers. In turn, Aurora should be better able to withstand falling marijuana prices better than its smaller competitors. Moreover, lower prices could even help to strengthen Auroras competitive position. Thats because when supply finally catches up with demand, there will likely be a period of industry consolidation as smaller, higher-cost producers struggle to survive. Aurora will likely emerge stronger during this period, particularly if it finds itself in position to acquire some of the smaller producers at a discount.

While Canopy Growth is expected to report stellar growth next year, not much of the growth is expected to trickle down into the bottom line.

All told, in a largely commodity-based industry such as marijuana, low-cost production is paramount. Auroras massive scale should serve it well in this regard.

When a business purchases another company, it typically needs to pay a substantial premium in order to entice its shareholders to accept the deal. But while this can produce significant short-term gains for the acquired companys investors, it can come at the expense of potentially far larger long-term gains. This is perhaps one the reasons Aurora Cannabis has resisted selling a large equity stake to a bigger business, as its rivals Canopy Growth and Cronos Group have done.

Alcohol giant Constellation Brands invested more than $4 billion in Canopy Growth in exchange for a 38% stake in the Canadian marijuana producer, as well as warrants that would allow it to up its stake to 50% in the future. Meanwhile, tobacco titan Altria Group purchased a 45% stake in Cronos Group — along with warrants that give it the right to boost its stake to 55% — for $1.8 billion.

These deals have provided Canopy Growth and Cronos Group with much-needed capital to fund their expansion projects. But theyve potentially come at the expense of remaining independent. Altria can acquire a majority — and therefore, controlling — share of Cronos Group if it chooses to exercise its warrants. Constellation Brands is widely expected to acquire at least half of Canopy Growth — and perhaps all of the companys remaining shares — should the marijuana producer continue to perform well in the coming years.

In contrast to Canopy and Cronos, Aurora Cannabis has yet to strike a major deal with a larger company, and it reportedly does not intend to do so. Billionaire investor Nelson Peltz — whom Aurora brought onboard as a strategic advisor in March — believes Aurora should remain independent. As my colleague Keith Speights notes, rather than sell a large stake to one company, Peltz recommends that Aurora forge strategic partnerships with multiple businesses across several industries — thereby aligning itself with more allies.

Perhaps most importantly, by remaining independent, Aurora Cannabis is positioning itself — and its shareholders — to capture a larger share of the companys value creation in the years ahead. As such, investors seeking to profit from the long-term growth of the cannabis market are likely best served by buying shares in Aurora Cannabis rather than Canopy Growth or Cronos Group.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.

There are plenty of reasons to like Aurora Cannabis (TSX:ACB) (NYSE:ACB). Aurora stock has climbed over 45% since the beginning of the year. The fact that two billionaires have decided to invest in ACB stock is another reason investor interest has piqued.

According to Yahoo Finance, Citadel Advisors and Renaissance Investors have just jumped on board the Aurora train.

Recent SEC filings show that Citadel Advisors and Renaissance Technologies, investment firms run by billionaires Ken Griffin and James Simon respectively, bought shares of Aurora Cannabis in the first quarter of 2019.

Currently, Aurora stock is selling for $10.47 USD, down 3% on the day. It’s plausible the market has yet to react to this news because if two of the world’s wealthiest people are investing in Aurora, it says a lot about the company’s potential.


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