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The Top-Producing Marijuana Stock is not a Buy. Here's why. – The Motley Fool




You will struggle to find an industry with more robust long-term growth potential than legal cannabis. Depending on your preferred source, the marijuana industry is capable of $ 50 billion to $ 75 billion in annual sales next year's tenth, representing 12.5% ​​to 16.7% annual growth for 12 years between 2018 and 2030. Good luck finding that kind of growth in other industries.

The problem is that the secret is out. Marijuana stock gains have been astronomical since the beginning of 2016 as global legalizations have taken shape. Canada recently became the first industrialized country in the world, and only the other country behind Uruguay, to give the green light to adult use, while 33 US states and more than 40 countries around the world have passed medical cannabis laws. It is a burgeoning industry with a seemingly infinite cure for the time being.

  A person holding a cannabis leaf in the middle of an adult farm.

Image Source: Getty Images.

Investors head over the heels of this top pot manufacturer

Among dozens of dozens of potters that investors have to choose from, no one is more popular than Aurora Cannabis (NYSE: ACB) especially with millennia . One reason Aurora hogs all honor is that it is slated to be the largest cannabis producer of top production. Although management suggests that peak production will exceed 500,000 kilos, I believe that Aurora Cannabis will produce more than 780,000 kilos a year by 2022.

Aurora is also a company that has done a very good job of pushing overseas markets. The company has a distribution and / or production presence in 24 countries worldwide, which will come in handy if and when dried cannabis flower is delivered in Canada. With nearly 840 retrospective applications (mostly cultivation applications), Health Canada could soon make the country's pot deficit a massive glut. These external sales channels will be of the utmost importance to Aurora and contribute to the margins not being decimated by falling per gram-flower prices.

The company's focus on medical marijuana patients is also unique. While most manufacturers have leaned very strongly against the recreation side of the equation, because the consumer pool is significantly larger, Aurora has focused on medical patients. Reason? Medical potty patients use more often cannabis, buy more often and are more willing to buy alternative products such as higher oils, such as oils.

And despite all these benefits, there are some good reasons to avoid this peak

  A cannabis leaf lies on top of a pretty stack of one hundred dollar bills.

Image Source: Getty Images.

Five reasons why Aurora Cannabis should not be on your shopping list

One of the main reasons Aurora does not match the shape of an upper echelon pot stock is the company's cash situation. After the end of its fiscal second quarter, ended December 31, 2018, Aurora announced a convertible note of $ 345 million (about $ 345 million), which, in combination with its cash and cash equivalents, brought its total cash to CA $ 500 million (near $ 375 million). Unfortunately, given Aurora's fondness for acquisitions, this is still not enough money to give the company much flexibility.

Due to this first point, Aurora's lack of available capital often means that it becomes the secondary market to acquire acquisitions and capital. This is just a fancy way of saying that it issues common shares as monopoly money, as well as the use of convertible debt to raise capital. Almost all of Aurora's capital increases will lead to ballooning of the company's outstanding shareholdings, which ultimately hurts long-term shareholders. Since the end of fiscal 2014 (June 30, 2014), Aurora's shareholding has increased by more than 1 billion shares to $ 1.02 billion – and that will probably increase even more. Aurora Cannabis will almost certainly fight to create meaningful profits too. Despite the fact that the management expects positive remaining EBITDA (earnings before interest, depreciation and amortization) beginning in the fourth quarter (April to June), Aurora looks like a small shot to generate ongoing profits without the help of one-off benefits until 2021 And even then, earnings per share may be marginal in the years to come, thanks to the ridiculous number of shares the company has issued since the end of fiscal 2014.

  Two businessmen in suits shake hands, as if in agreement.

Image Source: Getty Images.

Let's also not forget that Aurora Cannabis is one of the few marijuana shares without a partner right now. Some would see this quest for a brand name partner as another catalyst that could shoot Aurora's store higher. However, I would note that Auror's lack of partner could be the result of no company name company having an equity stake in a company that would continuously dilute its share with equity-funded acquisitions.

Finally, there are concerns about Aurora's many acquisitions. While goodwill – that is, essentially the premium amount over tangible assets, which a acquirer recognizes in its balance sheet – is a normal part of the acquisition process, no pot stock is more sporty in percentage of total assets than the buyout hunger Aurora. At the end of the second quarter, it had $ 3.06 billion in goodwill, which accounted for 63% of its total assets. There are simply no guarantees that Aurora will collect this goodwill anytime soon. In fact, it can do Aphria 's latest acquisition deviation looks like the children's game.

Aurora may be a popular marijuana store, but it does not make a good investment.



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