After a gloomy appearance in 2018 Aurora Cannabis (NYSE: ACB) so far this year. Shares in the Canadian Marijuana manufacturer have increased by almost 40% a year. In January, Aurora announced the acquisition of Whistler Medical Marijuana, which has gained a reputation for its high quality cannabis products.
But is everything really so pink for Aurora right now? Not necessarily. Here are three of the biggest concerns investors should have about Aurora Cannabis.
1. Mediocre International Sales Growth
Aurora Cannabis Chief Corporate Officer Cam Battley stated last year that "not everyone has fully appreciated" the potential of the global medical marijuana market. The company plays up the fact that it is active on five continents and 22 countries, with a leading market share in Europe and Latin America. Aurora's management believes that the global medical marijuana market can reach $ 70 billion Canadian, exceeding $ 50 billion.
But despite this, international sales continue to the needle of Aurora Cannabis. Even worse, the company's international sales growth is only mediocre. Aurora reported its Q2 results on 11 February. International sales accounted for only 6% of total revenues. And this sales increased by just 1.8% from the previous quarter.
Given, it's still early for most international medical marijuana markets. But Germany, the largest market in Europe, legitimized medical cannabis nearly two years ago. Battley said in the Aurora Q2 conference call that Aurora Cannabis is "a medical company at heart". The company will need significantly larger international medical marijuana sales in the future to prevent shareholders from experiencing heartburn.
2. Slowing to move into the US hemp market
The US legalized hemp in December, and Aurora's top rival, Canopy Growth (NYSE: CGC) quickly announced its intention to go into the US market. Less than a month later, Canopy followed up with an update that had secured a hemp license in New York State and planned to invest more than $ 100 million to build a large hemp production facility.
Aurora has been vocal about in the past about the desire to enter the US market. The company is no stranger to ham production, with several subsidiaries focusing on hemp. And the US hemp market could be as high as $ 22 billion by 2022, according to forecasts from the Brightfield Group.
With all this in mind, you might think Aurora Cannabis would be hot on Canopy's heels in getting into the US. No. When asked about the company's plans in the Q2 conference, CEO Terry Booth replied that Aurora would "come in when it is right to enter and when it is legal to enter the US market."
For Canopy Growth, the time to enter the United States seems to be both right and legal. Aurora Cannabis investors should be worried about the company's slowness to expand into a potentially large new market.
3. No Big Partner on the Horizon
Two of Aurora chief competitors, Canopy Growth and Cronos Group the country has important deals with large equity investments by large companies outside the cannabis industry. A couple of other Canadian marijuana producers have also collaborated with large alcoholic beverages, but without equity investments.
However, Aurora Cannabis has been abandoned by the party so far. Well, there have been rumors about appointments. In September, there were only stories circulating that Coca-Cola (NYSE: KO) were in discussions with Aurora. But nothing happened.
Securing an agreement with a large partner is not just a status symbol. Constellation Brands $ 4 billion investment has given Canopy Growth a large cash balance to fund expansion – including, as mentioned earlier, in the United States. The longer Aurora goes without a big partner – and the big dollars that come with it – the more worried investors should be about the company's ability to toe toe with Canopy on a global scale.
It can simply be a matter of time before all three of these concerns diminish.
As international medical marijuana markets are mature, Auror's sales in these markets will increase. The company may be slow to jump into the US hemp market, but perhaps the early cautious approach could pay off in the long run. And if worldwide cannabis sales start to grow as much as many expect them to, big partners from outside the cannabis industry are likely to call Aurora.
However, Aurora's high market value assumes a rapid growth for the company. If one or more of these major concerns are not resolved, Auror's share price may blur – making the stock's big start in 2019 just a temporary hurricane.