Aurora Cannabis (ACB) had a hard time this year. ACB stock had been investors’ favorite in 2018. The stock started off 2019 on a good note as well. However, various headwinds affected the cannabis sector this year. Additionally, the company missed its revenue targets and its profitability declined too. Let’s take a look at what factors affected ACB stock and why it is struggling.
Aurora Cannabis is positioned well
Compared to other cannabis companies in the industry, Aurora Cannabis positioned itself well. The company has focused on various strategic deals to expand its market. The company made many acquisitions this year. Take a look at A Look at ACB’s Acquisitions So Far to know more.
However, the expansion strategies came at a price. Aurora’s debt burden is rising. Currently, the company carries net debt of $603.8 million Canadian dollars. Comparatively, its peer Canopy Growth (CGC) (WEED) is in a better position, backed financially by Constellation Brands (STZ). Additionally, Aphria (APHA) is doing well under Irwin Simon’s leadership. To read more on this, take a look at Has Irwin Simon Really Turned Aphria Around?
Is ACB’s growth strategy working?
Even though Aurora Cannabis’s results this year have been dismal, one can’t deny its growth strategies weren’t a good choice. The company expanded its footprint in the hemp business. Additionally, it strengthened its medical cannabis business across Western Canada by buying Whistler Medical Marijuana.
The company’s results this year were more or less driven by the regulations issues in Canada. Canada legalized marijuana in 2018. However, strenuous regulations resulted in a lower number of retail outlets. Thus, it led to increased production. Hence, the cannabis industry now suffers from a supply and demand issue. It is proving advantageous to the illegal cannabis markets who are taking advantage of the situation.
Due to the lack of legal stores, consumers are inclined to the black market for cannabis products. Rising illegal black market sales is affecting legal sales for many cannabis companies. It was not only ACB that missed revenue targets this year. Canopy Growth struggled with lower revenue figures as well.
Is it the right time to look at ACB stock?
Aurora Cannabis reported a negative EBITDA of $39.67 million Canadian dollars in its recent quarter. Also, the company missed its revenue. The company blamed continued investments as the reason for not achieving profitability.
In its first-quarter earnings call, the company discussed its plans for achieving positive EBITDA. It is positive about its expansion plans for cannabis 2.0. However, many analysts think the company won’t be able to achieve positive EBITDA this fiscal year.
Bad news for Aurora Cannabis and peers
Rising debt concerns, continued investments, and pessimism about the cannabis sector have affected Aurora’s stock. However, as Aurora mentioned in its first-quarter earnings call, $130 million in revenue could help it flip its profitability. We feel the fate of Aurora Cannabis and other cannabis stocks depends on the companies’ performance next year after sales from Cannabis 2.0 kicks in.
Additionally, many feel cannabis legalization in Michigan and Illinois could bring in some positive news. On Dec 11, a CNBC article stated that Cam Battley, the chief corporate officer of ACB, said, “new developments in Canada next year should help, including edibles, vapes, and infused beverages. The clouds will start to part, the sun will start to shine through.”
In December, Aurora’s stock is up 4.0%. Year-to-date, the stock fell 47.5%. Check What Do Analysts Recommend for Aurora Cannabis? to know more about analysts’ recommendations for ACB.
To get more marijuana news, check 420 Investor Daily.