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ACB Stock Quarterly Report

The most recent report out of Aurora Cannabis Inc (NYSE:ACB) is very positive and is bringing me back around to full support of what was once my favorite pot stock: ACB stock.

 

 

By Stephen Karmazyn

 

With so many quarterly reports dropping this week, share prices are rising and falling on the backs of these all-important numbers. The most recent report out of Aurora Cannabis Inc (NYSE:ACB) is very positive and is bringing me back around to full support of what was once my favorite pot stock: ACB stock.

The ACB stock quarterly report showed solid growth, as you’d expect, in keeping with the expanding legal Canadian marijuana market.

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Revenue growth averaged 20% across all key markets, driven by the successful scale-up of the company’s production and continued strong performance across the Canadian consumer and medical markets, as well as international medical markets, showing strong gains over the previous quarter. (Source: “Aurora Cannabis Announces Financial Results for the Third Quarter of Fiscal 2019,” Cision, May 14, 2019.)

The market breakdown is as follows: the Canadian consumer market was up 37%, the Canadian medical market was up eight percent, and the international medical market was up 40%.

Aurora Cannabis also grew its medical patient base by five percent to 77,136.  It has 82,745 active registered patients, a further increase of seven percent, and continues to register new patients as product availability ramps up.

Another victory for Aurora Cannabis Inc came by way of its cost-cutting measures; cash cost to produce per gram declined 26% to CA$1.42 per gram, as facility expansion increased productivity. Production volume itself nearly doubled, jumping 99% from the previous quarter and a whopping 1,200% year-over-year. The increase in production accelerated through the quarter, with the majority of the harvested volume realized in the last half of the quarter.

Perhaps the most important figure in the report is the company’s adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA)—the loss improved by 20% to CA$36.6 million, with Aurora Cannabis projecting EBITDA-positive results beginning in Q4 2019 as operations continue to ramp up.

That is huge.

I’ve long said that now that hard numbers are in play, transitioning from a growth phase into a profit-making phase will be hugely beneficial for share prices. While expansion is important, investors want to know that these companies can make money. Aurora is very close—by its own words—to achieving that positive cash-flow that will entice many investors.

“We achieved solid revenue growth and strong operating results in a quarter proven challenging across the industry,” said CEO Terry Booth. (Source: Ibid.)

The company fell a little short of forecasts, but that hasn’t impacted ACB stock all that much. Despite a small dip in value immediately after the release (which coincided with a general downturn in the industry more broadly), ACB stock bounced right back with a solid day of gains, jumping about three percent by day’s end.

I cannot stress how important that positive cash-flow projections are for ACB stock right now. If it is able to fulfill that promise, then I foresee big moves for Aurora Cannabis stock in 2019. Furthermore, the company has a number of other ways to expand that could see it among the top marijuana stock performers as the year goes on.

The overall picture, then, is that investors are very excited about the future that ACB stock promises. More importantly, it’s starting to challenge Canopy Growth Corp (NYSE:CGC) as one of my top pot stocks for 2019.

ACB Stock vs CGC Stock

Chart courtesy of StockCharts.com

As you can see from the chart above, ACB stock is now competently challenging CGC stock as one of the best pot stocks in 2019. That was not at all the case in 2018.

Despite Aurora Cannabis making a hard push to become the top pot stock via acquisitions, that effort ultimately fell short and Canopy Growth was able to outpace it in both market cap and gains. The result, then, was another series of bold—some would argue brash—acquisitions, all in the attempt to keep pace with Canopy Growth.

This led to a decline in value for ACB stock in 2018—at least relative to Canopy Growth—and made the separation between the two marijuana giants very clear: CGC stock was on top.

That may be changing in 2019, and here’s why: there’s a lot of budding excitement around what Aurora Cannabis could accomplish in the coming year.

Going cash-flow positive would, naturally, be a huge boon for share prices. But even beyond that, there are a number of ways that Aurora Cannabis could try and rival Canopy Growth once more.

The easiest way—and one of the more likely scenarios—is a massive partnership.

In 2018, rumors swirled that The Coca Cola Co (NYSE:KO) was looking to enter the cannabis-infused drink business—and it saw Aurora Cannabis as a potential partner in that endeavor.

While that deal never materialized beyond rumor, the foundations for such a partnership—with Coca Cola or another company—are still there.

For instance, cannabidiol (CBD) is now more present than ever in the U.S. market following hemp cultivation legalization in the U.S. to start 2019. That makes the process much smoother for companies looking to put cannabis-infused beverages on store shelves.

We’re already seeing alcohol companies trying to get in on this market; it stands to reason that other drink makers (soft drinks, energy drinks) may not be far behind.

The potential, then, is there for more companies to begin entering the marijuana market—and bringing big money with them via investments.

If Aurora Cannabis were to be the target of such a partnership, ACB stock would skyrocket and begin to reach its potential.

And that’s the main difference between CGC stock and ACB stock: potential.

While I have no doubt in my mind that Canopy Growth stock will continue to be among the best picks in the market, it is already hot under the spotlight. Everyone is watching Canopy Growth to see what it will do. It continues to impress and innovate, but that will only get harder as time goes on.

On the flip side, Aurora Cannabis simply hasn’t had as many victories early on as Canopy Growth. Whether it’s a Big Alcohol partnership, more thorough global expansion, or supply contracts,  Aurora Cannabis trails Canopy Growth pretty much across the board.

But that means that, while likely remaining behind CGC stock, ACB stock has the opportunity to make some real headway in the shadow of its larger competitor by virtue of just getting better.

Think of it like this: it’s hard for a world-record sprinter to beat their fastest time; it’s a world record, after all. But it’s infinitely easier for a young, up-and-coming sprinter to begin to shave a few milliseconds off their time as they chase the front-runner. On the stock market, shaving a few milliseconds can translate into huge gains, and that’s what we’re watching for out of ACB stock.

Analyst Take

The marijuana industry is on a tear in 2019 and many companies are making strong moves toward gains as we reach the halfway point. In my mind, few companies are as potentially well-suited to take advantage of that momentum as Aurora Cannabis Inc.

The keyword here is “potential.” There are many companies that are surer things, but Aurora Cannabis has a nice combination of both steady fundamentals and long-term gains potential that makes it a hard pick to pass up.

The way I see it, if you want to have a high ceiling without too deep a bottom, Aurora Cannabis is a good choice. If, instead, you’d prefer a more solid—if less potential-laden—pick, then CGC stock seems like the way to go. Frankly, both are winners in my eyes.