Enthusiasm for marijuana shares is at a full-time elevation, and that buzz has enabled Aurora Cannabis (NYSE: ACB) to expand operations at a thought-provoking rate. As a result, the marijuana producer has a large share of the Canadian market for legal cannabis, rapidly growing international operations, and a billionaire activist investor on the payroll.
Aurora Cannabis will soon be able to grow 700,000 kilograms of marijuana annually at a per-gram price that its big name competitors cannot match. Hiring billionaire activist Nelson Peltz as senior advisor could inspire Coca-Cola to return to the charter or another 500 company to take a chance.
Aurora can produce half a million kilograms of cannabis per year, and production can exceed 700,000 kilograms by 2020. Auror's fancy automated greenhouses have lower payroll costs than most of their peers, which can give the company a long-term advantage in a market such as gets crowded.
How Peltz Could Make The Aurora Even Better
If Nelson Peltz was in control of Aurora's board, it was an overall change he would probably make – and it is closing a growth cost strategy that has created an endless array of investments made with money that the company does not have. Whistler Medical was probably a wise addition, but using heavily to build operations in 24 countries on five continents over a few short years will probably not work for long-term investors to dip their toes into Aurora right now.
Although the stock has increased 1,940% over the past three years, the market price has increased 15.840% over the same time frame to a lot of $ 9.07 billion. Producing a similar return from recent prices will require the company's market coverage to reach at least $ 175 billion in a few short years, which will make Aurora about twice as valuable as General Electric is today.
Aurora finished in 2018 with $ 205 million in cash and securities, which means another capital increase is just around the corner with less demand for legal cannabis skyrockets in the first quarter while prices are either down or better.
Why Peltz Doesn't Get Away
A Rolodex full of potential new partners and an air of dignity are the main reasons why Aurora is willing to pay Peltz up to $ 620 million for advisory services. So far, however, the activist and the fund he manages have not disclosed any investment in Aurora Cannabis beyond Peltz's time and reputation.
Activist investors follow all the same basic formula that involves buying stocks that are underperforming and trying to increase them in ways that their management teams do not agree. Without any votes, Peltz does not agree to stop Aurora from making extremely risky investments.
Aurora is taken what looks like a strong position in new markets trying to get their government-run medical marijuana programs off the ground. While Germany tends to pay a much higher cost per gram, it is also the strictest EU member in terms of cannabis. Prosecutors generally cannot charge anyone with possession less than 7.5 grams, and some can grow it for personal use as well. In Spain, you are allowed to grow cannabis on private property as long as it is consumed by adults in private, which has resulted in dozens of non-profit Cannabis Social Clubs acting as marijuana stores.
The stock market enthusiasm knows no bounds, but the odds for Aurora are big enough to give outstanding gains from today's current starting point is slim. Sales, general and administrative expenses reached $ 66.3 million over the last three months of 2018; During that time, the company reported a gross profit of just $ 32 million. With social clubs and their counterparts across the EU operating with less concern than Canada's illegal market, it will be difficult to maintain large profit margins for medical marijuana in the region.
During the last three months of 2018, Aurora reported a net loss of $ 240 million and a massive $ 405 million loss when you face fluctuating prices for other marijuana shares it owns. On the Aurora home market, cannabis prices are contracting, and Aurora can only trim as much from the selling price per gram, reaching $ 2.60 over the last three months of 2018. That means investors can expect further losses ahead.