You may have heard that a top analyst covering the cannabis industry picked Aurora Cannabis (NYSE: ACB) as the best marijuana stock on the market right now. You may have also noticed that Aurora's share price has increased more than 90% so far in 2019.
With the analyst's awards and power plant performance, you may be wondering if it's time to buy Aurora Cannabis stock. The answer is … maybe. Here are five things you need to know first, but before you buy the hot marijuana stock.
1. It is on the right track to have the highest capacity in the industry
Here is an important fact about the marijuana industry: A company can only sell what it can produce. Of course, that's true for just about any industry. But here's another fact about the marijuana industry that doesn't apply to most industries: Businesses can sell everything they can produce. That's what happens when demand is greater than supply.
If you add these two facts together, it makes sense that the most successful companies in the marijuana industry will have the greatest capacity. The good news for Aurora Cannabis is that it is on the right track to have the highest capacity in the industry.
Aurora expects to have an annual production rate of 150,000 kilos by the end of this month. But the funded annual capacity target for mid-2020 peaked at 500,000 kilos. And this figure does not include increased capacity that Aurora's acquisition of ICC Labs will bring.
2. There is No. 2 in the Canadian Recreation Market
The Canadian leisure environment market in Canada is still in its early days. However, we already know that two companies have emerged as the clear leaders based on their latest quarterly updates.
Canopy Growth (NYSE: CGC) claims the highest market share in the Canadian recreational pot market. Aurora Cannabis, however, is not too far behind with a market share of 20% in the quarter ending December 31, 2018. It may be a bit jockeying in place down the road, but it seems that Aurora will stay close to the top over the long term.
3. It is undoubtedly the leader in international markets
This is a close conversation. Aurora reported international sales of $ 2.9 million in Canadian dollars (around $ 2.2 million) last year, compared to Canopy Growth's total international sales of $ 2.7 million (about $ 2 million). There is a slight difference, especially considering how early it is for global medical marijuana markets.
But Aurora recently started sending cannabis oils to Germany, which almost certainly will provide its international sales growth. The company is also active in 24 countries that span five continents. It's even more than Canopy Growth, which has operations in 16 countries.
The biggest drawback for Aurora from an international perspective is in the United States. Aurora cannot enter the marijuana market in the United States and keep the listing on larger stock exchanges as long as marijuana remains illegal at federal level. Canopy has already announced plans to jump into the US hemp market, but Aurora hasn't done so yet.
4. There is Fishing for Strategic Partnerships
Another area where Aurora is undoubtedly behind Canopy Growth is in strategic partnerships. Large alcoholic beverage maker Constellation Brands has harvested over $ 4 billion in Canopy and owns a 38% stake in the company. So far for Aurora, there have only been rumors of potential deals with large companies outside the cannabis industry.
However, it may soon change. Aurora recently broke billions of investors Nelson Peltz on board as a strategic advisor. Peltz's role would be to help the company find partners in what he called "mature players in consumer and other market segments." If this work succeeds, Aurora may have some significant catalysts going forward.
5. It's diluted the value of existing stocks like crazy
You might think I've painted too rosy of a picture for Aurora Cannabis so far. Well, here's the tower of the rose: Aurora has diluted the value of its existing shares as crazy by issuing new shares as part of purchased contract financing transactions. As the following chart shows, these transactions have taken a large fee on the share's performance.
The growth in market value reflects what Auror's stock market development would have been if it were not for dilution. Aurora's leaders, however, will tell you that this dilution from issuing new shares was a necessary evil to expand rapidly to position the company in the long term.
This can still be a problem for investors. Although Aurora is tracking against profitability, there may still be a need to increase additional capital for expansion through purchased contract financing in the future. In addition, the company has nearly $ 500 million in convertible notes that can be converted into shares over the next few years, further diluting.
Another thing to know
There is another thing investors are considering buying Aurora Cannabis should know: how big the global marijuana market could be. Some point to a global market of $ 150 billion. This figure comes from a United Nations estimate, but it includes illegal marijuana sales as well as legal sales.
Others mark the potential of cannabis to disrupt several multibillion dollar industries. Canopy Growth with CEO Bruce Linton said cannabis could interfere with a global $ 500 billion global market, including the impact on alcoholic beverages, tobacco, and drugs.
The truth is that some of what you hear is hype. The reality, however, is that the global legal marijuana market will no doubt be much larger in the future. I think a market size of over $ 100 billion over the next 15 years is quite possible.
Aurora Cannabi's market value currently stands at around $ 9 billion. All the company has to do, take a small share of the global market to have a lot of space to run.