Can the US Cannabis Market Rescue ACB?

Aurora Cannabis (ACB) stock isn’t in the best shape today. As reported by BNN Bloomberg, the company’s CEO, Terry Booth, is justifiably worried about its shedding almost half of its market value YTD (year-to-date).

As reported by MarketWatch, the recent downtrend in cannabis stocks is due to the disappointing results these companies have continued to post as recently as at the end of the latest earnings season. According to Mackie Research Capital analyst Greg McLeish, investors are reacting to the weaker performances of Canadian and US legal cannabis players. He also highlighted investor worries about the demand-supply mismatch in Canada. The rate of the increase in cannabis production has outstripped the rate of the rollout of retail infrastructure. However, he cited Cannabis 2.0 as a major growth opportunity for these companies.

As reported by MarketWatch, McLeish has warned of the possibility of bankruptcy for many smaller licensed cannabis players. He believes that provincial governments in Canada will purchase Cannabis 2.0 products from only a few companies to benefit from economies of scale. Against this backdrop, he believes specialization and differentiation will be key to cannabis companies’ survival.

This opinion echoes that of Booth, who’s more concerned about ACB’s differentiated position in the marketplace than about overall cannabis demand.

ACB is hopeful about the US cannabis market

As reported by BNN Bloomberg, Booth expressed hope about the opportunity in the US legal cannabis as well as the US CBD market. He also expressed the need to optimize spending and improve overall governance at ACB. Booth also explained that Aurora Cannabis can’t have a presence in the recreational marijuana business in the US because the company trades on the Toronto Stock Exchange. This restriction stems from cannabis still being federally illegal in the US. Despite having studied the US cannabis market for a long time, ACB had to delay its entry into this market. However, Booth also hinted at certain plans for ACB’s future entry into the US.

According to New Cannabis Ventures, the vaping crisis in the US may be nearing a resolution. On November 21, the Centers for Disease Control and Prevention cited vitamin E acetate as the potential cause of the vaping crisis. Since this chemical is generally not present in regulated cannabis products, the finding hints at the larger role of illegal players in the crisis.

According to New Cannabis Ventures, marijuana legalization in Michigan and Illinois will also help improve the overall investor sentiment. The research company also highlighted the potential of marijuana legalization in Florida, Arizona, New York, New Jersey, and Pennsylvania to further improve the US cannabis industry’s growth prospects.

Booth is also focusing on the US CBD market

According to BDS Analytics and Arcview, total US CBD revenue will rise from $11 billion in 2018 to $44 billion in 2024. Canaccord Genuity has estimated the size of the US CBD market to expand from $1.9 billion in 2018 to $18.4 billion in 2024. As reported by the Washington Post, Anheuser-Busch, Ben & Jerry’s, and Unilever are also developing CBD-based products. Retailers such as Kroger (KR), CVS Health (CVS), and Walgreens (WBA) have agreed to sell these products. However, a recent FDA warning about CBD’s safety and potential adverse effects could affect the growth of this market.

As reported by BNN Bloomberg, Booth also disclosed that the company had come close to completing certain deals in the US CBD space. The company’s bankers canceled the deals, but Booth expressed the desire to attain a first-mover advantage in the market. However, this may no longer be possible.

As reported by BNN Bloomberg, Canopy Growth (CGC) has launched First & Free, a hemp-derived CBD brand, in the US. The products will be available in US states in which cannabis is already legal.

Challenges in Canada’s cannabis market

As reported by BNN Bloomberg, Booth anticipates “carnage” in Canada’s cannabis market if producers fail to control their production costs. He believes Aurora could face rising pricing pressures in the industry owing to its low cannabis production costs. Booth also expects the European medical cannabis market to require some more time to reach its projected size.

In its first-quarter earnings release, the company announced an upcoming at-the-market offering to raise up to $400 million. Booth expects this funding to help the company’s operations during the ongoing capital crunch in the industry. He also reiterated his confidence in ACB by purchasing up to $1.0 million of its shares in the first quarter. He expressed interest in acquiring companies that are a cultural and operational fit for ACB at the appropriate valuations.