Aurora Cannabis (ACB) has been one of investors’ favorite stocks among cannabis companies. The company has positioned itself well in the cannabis space. Overall, 2018 wasn’t a good year for Aurora Cannabis. However, the year wasn’t good for the cannabis industry in general. Aurora Cannabis might turn things around in 2020.
What happened to Aurora Cannabis in 2019?
Despite being prepared after Canada legalized recreational cannabis in 2018, Aurora Cannabis struggled to hit its revenue numbers. The problem wasn’t demand or the company’s production. Instead, regulatory issues and slower store rollout impacted the company. Aurora Cannabis and its peers weren’t able to match the demand. When Canada legalized adult-use cannabis, it didn’t include edibles and vapes. Edibles and vapes are among the most popular cannabis products. Since the demand for these products was higher, consumers chose to turn towards the illegal market to obtain the products.
Cannabis industry struggled
Black market sales rose this year. Fewer legal stores and a variety of products impact the supply. Black market sales also increased because they offered products at lower prices compared to legal cannabis stores. Retail marijuana sales and cannabis companies’ performance took a hit this year. Aurora Cannabis missed its revenue targets, which it originally expected when legalization happened. The company also missed analysts’ revenue estimates. ACB struggled to achieve positive EBITDA this year.
Aurora Cannabis has increased its debt burden to develop and invest in its production facilities and more strategic acquisitions. I don’t think it was a bad decision. I think that the growth strategies will generate results by 2020. Notably, cannabis is an evolving industry that’s still growing. Although there are many factors at play, regulations matter the most. Despite higher demand, ACB isn’t able to expand in the US market due to legalization issues in the US.
Canopy Growth (CGC) (WEED) struggled with the same issues, while Aphria (APHA) had a good year. Irwin Simon’s leadership likely played a role in Aphria’s performance this year. Aurora Cannabis and peer stocks have also struggled this year.
Will Aurora Cannabis turn the corner in 2020?
Cannabis companies could be profitable in 2020. Cannabis 2.0 products will be available next month. Deloitte expects the edibles and beverage markets to generate a large amount of revenue next year. The market will also discover a new consumer base. Surveys have shown that many new consumers want to try marijuana edibles. Recently, a Raymond James analyst said that he thinks the cannabis sector could turn around in 2020.
An Investor Place article discussed how Aurora Cannabis will bounce back along with other cannabis companies. Industry experts think that factors that were a headwind for the sector in 2019 will be tailwinds in 2020. ACB has a good leadership position in the market. Also, the company’s valuation is favorable compared to other cannabis stocks. Now that production ramped up with differentiated products for sale, revenue growth shouldn’t be an issue. Since the cannabis sector isn’t predictable, there will likely be ups and downs.
A Seeking Alpha article also discussed how Aurora Cannabis could outperform its peers in 2020 due to its superior management team. In How Cannabis Retail’s First Year Shook Out, I discussed how Canada is working to open more legal stores to tackle supply concerns. Opening more legal stores will also help combat rising black market cannabis sales.
Many industry experts think that after Cannabis 2.0 is a success, Canada will launch Cannabis 3.0 and 4.0. ACB’s growth strategies and acquisitions look prepared for the future. US marijuana legalization will be a huge factor for the sector. Meanwhile, the states are working to legalize cannabis. We’ll have to wait and see how things turn out for the cannabis sector in 2020.