During the Woodstock era of the 1960s, “pot” was the prohibited fruit that hippies, freaks, university kids, rock stars, and rebels of all stripes imbibed to taunt the establishment.

Fast forward to October 17, 2018. That’s when Canada legalized on the federal level the ownership and use of recreational cannabis. The vast possible wealth of “canna-business” is intoxicating personal investors around the globe.

Canada was the first G7 country to take this strong step, and it triggered an aftershock in the worldwide cannabis industry. In tandem, a growing number of states in the U.S. are legalizing weed.

One stock capitalizing on this mega-trend is Canada-based Aurora Cannabis (NYSE: ACB, TSX: ACB), which has continued making news lately because of its aggressive expansion strategies.

Should you buy into the cannabis high, via Aurora Cannabis? In addition, will the stock take investors on a bum trip?

Aurora Cannabis

Aurora Cannabis is Headquartered in Edmonton, Canada, and produces and distributes a wide variety of medical cannabis products.

The company’s products consist of dehydrated cannabis and cannabis oil, CanniMed vegan capsules, and hemp products. The company also sells vaporizers, vaporizer accessories, and herb mills.

Aurora Cannabis (market cap: $5 billion ) serves their products in 22 countries and holds partnership agreements with several prescription retail chains for the distribution, sale, and marketing of medical cannabis products. Aurora also operates CanvasRX, a string of counseling centers for marijuana medical treatment.

In October 2018, Aurora replaced its OTCQX ticker symbol ACBFF to “ACB” on the New York Stock Exchange (NYSE) and continued to trade under ACB on the Toronto Stock Exchange (TSX).

Aurora’s Performance

Over the past 12 months, Aurora Cannabis has lost 19.9% compared to a loss of 7.2% for the S&P 500.
Over the past two years, Aurora Cannabis has gained 196.5% compared to a gain of 11.1% for the S&P 500.
How Has Aurora Cannabis Performed In 2017/2018?
In 2017, Aurora Cannabis gained 328.6% versus a gain of 9.4% for the S&P 500. In 2018 year-to-date, Aurora Cannabis has lost 46.2% compared to a loss of 7.6% for the S&P 500.

Aurora’s Rivals

Canopy Growth (NYSE: CGC)

Based in Smith Falls, Canada, Canopy Growth produces and sells medical cannabis in Canada. Its products include dried flowers, oils and concentrates, softgel capsules, and hemp. The company offers its merchandises under the Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow, and Foria brand names.

With a market cap of $9.1 billion, Canopy Growth garnered substantial media attention in August 2018, when beverage giant Constellation Brands (NYSE: STZ) paid $3.8 billion to boost its ownership of CGC to 38%, to help fuel Canopy’s development of new products.

GW Pharmaceuticals (NSDQ: GWPH)

With a market cap of $3 billion, GW Pharmaceuticals develops cannabinoid treatments. Through partnerships with Big Pharma, the company is marketing its Epidiolex multiple sclerosis treatment in more than 20 countries.

22nd Century Group (NYSE: XXII)

22nd Century Group has a market cap of $302.9 million, this biotech focuses on genetic engineering and plant breeding and is expanding a new strain of hemp with zero tetrahydrocannabinol (THC), the primary psychoactive composite found in cannabis.

22nd Century Group also is creating genetically engineered tobacco plants with 97% less nicotine than traditional tobacco, as well as a pressure of high nicotine that allows for the lowest tar-to-nicotine ratio in the tobacco industry.

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Aurora’s Expectation for 2019

Aurora Cannabis is vertically mixed and horizontally diversified, two beneficial qualities. The company possesses a growing footprint throughout the cannabis value chain, including agri-facility building and design, genetic breeding, plant agriculture, product construction, and wholesale and retail distribution.

Aurora Cannabis also benefits from its location.

Canada is the second country, after Uruguay, to legalize the possession and use of medical cannabis for all adults. Medicinal marijuana has been legal in Canada since 2001.

Canada’s method differs from that of the U.S., where marijuana remains forbidden at the federal level, but states are free to establish their own laws.

In the U.S. 30 states and the District of Columbia have authorized marijuana to some degree (see chart, current as of December 2018).

Source: Governing magazine.

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Experts expect the demand for marijuana to rise in Canada, creating a severe deficit. The scarcity of weed should be manna for Aurora investors.

According to Ameri Research, the global legal marijuana market generated spending of $14.3 billion in 2016 and is projected to increase at a compound yearly growth rate of 21.1% between 2017 and 2024, climaxing in 2024 revenue of $63.5 billion.

To meet this projected demand, Aurora has dramatically increased in recent months, buying other companies and building new facilities. Notably, on December 10, 2018, Aurora announced that it would purchase its Mexico-based medicinal cannabis partner, Farmacias Magistrales.

Aside from providing entrée to the substantial Mexican market, Farmacias is the only company so far that has a license to import, manufacture, store, and dispense medical cannabis that contains over 1% THC.

Financial details about the deal are sketchy. However, through Farmacias, Aurora can provide Mexico’s users with non-flower medical cannabis products containing THC, which carry higher profit margins than the flower variety.

Will Aurora Cannabis Go Down In 2019?

Thousands of thinly capitalized startup businesses are trying to catch the legalization wave, but most are on the road to collapse. Because marijuana is still outlawed on the U.S. at the federal level, cannabis companies have limited access to even basic banking services, which makes it difficult to run a public company.

Throughout the late part of 2018, the general stock market has wildly gyrated. Sharp sell-offs have been especially hard on smaller pot stocks, which can spike up or down on even the scent of bad news.

The exploding pot stock sector is poised for a sharp shakeout, as investor euphoria wears off and Wall Street comes to its senses regarding many little marijuana businesses that have been bid to ridiculous lengths on hype.

Moreover, Aurora has been in extension mode. The problem is, the company has been funding its acquisitions and foundation investments with common stock. The Farmacias deal in December is the fourth time in 2018 that Aurora circulated common stock to aid in the purchase of another corporation.

Share issuances harm shareholders because they dampen the value of existent shares. Also, a higher amount of outstanding shares makes it more challenging for Aurora to achieve substantial earnings per share.

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Aurora’s Forecast And Prediction For 2019

Aurora Cannabis’ operating results have been reliable. For its full fiscal year 2018, Aurora racked up revenue growth of 206% in contrast to the previous year. Net income climbed to a gain of CAD$71.9 million from a loss of CAD$13 million in fiscal 2017.

The volume of cannabis that Aurora produced in 2018 jumped by 85% on a year-over-year basis to 5.6 million kilograms, while the amount sold grew by 111% year-over-year to 5 million kilograms.

As industry tailwinds quicken, especially in the company’s headquarters nation of Canada, Aurora’s revenue and earnings should remain on an upward trajectory in 2019.

As a mid-cap stock, Aurora maintains the valuation “sweet spot.” It’s small enough to present outsized growth — the variety of growth that usually avoids the Big Pharma blue chips. However, Aurora is big enough to resist the volatility that seemingly lies ahead in 2019.

Another enticing feature of Aurora is its suitability as a takeover target. The fast-growing cannabis industry is combining; with primary beverage or tobacco corporations that could develop along as a suitor, pulled not just by the company’s extensive merchandise portfolio but also by its firm foothold in Canada. America’s northern next-door-neighbor holds an important value in the booming marijuana industry.

Aurora Cannabis isn’t for risk-averse investors; its rapid expansion funded via the issuance of common stock should give pause to conservative traders. However, unlike many of its rivals in canna-business, Aurora Cannabis enjoys meaningful earnings and revenue growth.

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