This is thanks to top Canadian marijuana stock Aurora Cannabis (NYSE:ACB), which announced Tuesday that it has launched cannabinoid-infused “sublingual wafers” — i.e., thin strips meant to be held under the tongue until they dissolve to nothing. The strips are aimed at medical cannabis users and will be sold on the Canadian market.
We shouldnt try to time the lows, but should understand that when we do take positions they could still drop. The key is not to let pressure from further decline in share price (if thats how it plays out) flush us out of our positions. Investors should look at holding for the long term when they invest under current market conditions, because when the turnaround comes, its going to reward those investing in companies with long-term potential.
In the press release for the somewhat unimaginatively brand-named Dissolve Strips, Aurora said that it is the first of its kind. Dissolve Strips were developed by Aurora in conjunction with fellow Canadian company CTT Pharmaceutical Holdings.
In the short term Aurora will probably have to endure some more pain. My conclusion is once it has at least one quarter under its belt concerning selling derivatives in Canada, it ramps up sales to Europe, production capacity jumps to over 650,000 kilograms annually, and it slashes cost per gram to about $1.00 or lower, its going to being consistent growth that will give support and a steady increase to its share price.
Aurora, incidentally, holds an approximate 9% stake in CTT, one of various minor shareholdings it has in other companies. Aurora also owns warrants that would allow it to boost this figure significantly, to 42%.
According to Aurora, the new offering “adds yet another innovative offering to our growing portfolio of high quality, medical products that we offer our patient base, and is testament to our industry leading ability to work with technology partners and regulators to bring new form factors to market rapidly.”
The company titles this particular form factor Orally Dissolvable Thin Film Wafers, which are made of polymer film.
Aurora claims the strips have several advantages over other means of ingestion. Among these are quick consumption (five to 15 seconds, the company says) and the ability to be taken orally without having to drink water or to swallow. Such features make Dissolve Strips appropriate for patients who have difficulty taking medicine in traditional ways.
Contrary to some commentators, the cannabis market is not experiencing oversupply at this time, especially in Canada. The problem isnt demand, but the lack of retail outlets to sell cannabis to consumers. That is gradually getting fixed, and it should, in the near future, have a significant impact on the performance of Aurora.
In the press release, Aurora gave no indication of the potential size of the market for Dissolve Strips. It also did not mention any possibility of rolling out or modifying the product for the recreational consumer market, which has been lively in Canada following the legalization of that type of consumption almost one year ago.
Regardless, Aurora stock closed marginally higher on the day the announcement was made, bucking the general downward trend of the stock market. The price has generally been on a decline since March, however, and so far in 2019, its down by 16%. In fact, it has lately been bouncing around lows not seen in over a year.
For most stocks I dont encourage investors to average down, but in the case of Aurora Cannabis, which has such a clear growth trajectory, while operating in a market that will expand for many years, its obvious this stock, even if it takes some more short-term hits, is going to do very well in the years ahead.
The days of cannabis stocks being all the rage are long gone. Now, spikes in stocks of companies like Aurora Cannabis (NYSE:ACB) have been opportunities to sell. Regardless of the reason why, the appetite for pot stocks is but a fraction of what it used to be on Wall Street. Even the anointed kings of the sector like Canopy Growth (NYSE:CGC) have been clobbered. Once-beloved ACB stock is down 21% year-to-date.
Some of ACB’s pain is self-inflicted, thanks to bad headlines. The rest is probably from expectations coming back to earth from the moon. For a while, ACB stock valuation was astronomical. I’m not saying that it’s cheap now — but it’s definitely more realistic. And it’s not alone, as the whole industry has repriced hopium. Case in point is the high-profile spike in Tilray (NASDAQ:TLRY). In one day it hit $300 per share then crashed 90%.
So is it game over for the sector — and specifically for Aurora Cannabis stock? Not necessarily. However, the bullish thesis for ACB has to be one for the long term. Otherwise it would be merely a short-term trade with specific stops and targets.
So far the long-term thesis is simple: Buy ACB stock and hold it for years to come. The idea is that this is a very young industry that is still illegal in most of the United States. So it is reasonable to expect the stocks to suffer after the initial honeymoon period. But if the vast scope of applications for cannabis come to fruition, then the upside in the ACB stock price is tremendous.
But this is the bet that investors will have to make. I would consider this a speculative position inside a conservative portfolio that has a medium to low conviction level.
Alternatively, ACB stock has clear short-term levels that active traders can use to profit in the meantime. Recently, ACB set higher-lows off of last week’s bottom. This is encouraging, but it’s also setting the lower-high for weeks. If this continues, the ACB stock price range will shrink into a point somewhere around $4.40 per share. This is where I anticipate the real fight between buyers and sellers will happen.
If ACB stock bulls can break and close above $4.60 per share, then they could have a base on which they can mount a recovery rally. The upside target would then depend on how hard the bears fight on the numerous resistance levels thereafter. Since this is a falling knife, any short-term trades will have to come with tight stop-loss levels. This varies with personal taste and risk appetite, but it would make sense to use prior pivot levels as trigger points. In this case, ACB stock needs to hold $4.20 to maintain the higher-low trend. Therefore it is reasonable to use that as a stop-loss for anyone attempting to catch this falling knife now.
Traditional wisdom says to invest for the long term. This is very true in this case because these are young companies that are swimming upstream against laws and social difficulties, so setbacks are inevitable. But I am confident that cannabis stock fans are relentless — and they will fight tooth and nail to make this happen.
So anyone who underestimates the long-term potential of this very young industry is making a mistake. Aurora Cannabis simply has to prove to investors that it’s worthy of the potential that could lay ahead. Its execution is very key — and this is probably the biggest question mark that I have for these companies. Caution is more than warranted especially since the general stock markets are in limbo because of geopolitical headlines.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.