Aurora Cannabis (ACB) could have troubled waters ahead in 2020. Once a darling to cannabis stock investors, Aurora is still the largest cannabis stock on Wall Street in terms of market cap.
But the stock is hardly immune to the external pressures that have been weighing down on the cannabis sector at large. Primarily, supply constraints in Canada, excessive tax rates in the United States, and fierce black market competition across markets.
Adding to ACB’s woes, the company hasn’t lived up to the expectation that it’d become the production powerhouse that it had set out to be. Aurora Cannabis was projected to be the world’s largest cannabis producer when at full operating capacity by mid-2019.
The company’s 15 grow facilities were expected to generate approximately 625,000 combined kilos of annual run-rate capacity by the end of fiscal 2020, reaching a peak production potential of roughly 670,000 kilos. This was supposed to position ACB as a frontrunner in the race to the cheapest gram.
But as the province of Ontario dragged its feet on opening more cannabis retail locations, and Health Canada delayed the launch of derivatives by two months, Canadian-based cannabis companies have felt the pinch across the board.
The situation has now sent Aurora (along with many of its peers) scrambling into cash-conservation mode.
In recent months, Aurora Cannabis announced that it would be halting construction on its 1-million-square-foot Aurora Nordic 2 facility in Denmark, as well as its 1.62-million-square-foot Aurora Sun campus in Alberta.
The company is also looking to unload its 1-million-square-foot Exeter facility by putting it up for sale. The cultivation facility was originally purchased as part of its MedReleaf acquisition for $2.02 billion.
One of the main concerns on Wall Street is that the company may not have enough cash on hand to make good on its debts. Aurora has already had to issue a ton of new stock in order to amend a CA$230 million convertible note that’s scheduled to come due in March.
And the company has an additional $400 million in at-the-market share offerings if it needs to elevate its cash position. This could lead to more share dilution which would have investors frowning.
Pouring more salt on the wound, Aurora has a significant amount of goodwill on its balance sheet (to the tune of CA$3.17 billion), accounting for 57% of its total assets.
No consensus on Wall Street
Adding to the confusion surrounding this stock, there is very little consensus among Wall Street analysts about how ACB will perform in the upcoming year. At the pessimistic end of the spectrum, LJ Research analyst Gordon Johnson rates the stock as a Sell with a year-end price target of $0.
Piper Sandler’s Michael Lavery sees Aurora losing half of its current market cap, and Bank of America Merrill Lynch analyst Christopher Carey concurs.
At the other end of the spectrum, Cowen’s Vivien Azer recently confirmed her outperform rating for the stock, setting a one-year price target that shows a 100% upside. And Cantor Fitzgerald’s Pablo Zuanic believes that ACB could double in price.
Keep watch for Aurora Cannabis’ upcoming earnings report due February 13, 2020.
Aurora Cannabis Inc. (ACB) was trading at $2.00 per share on Friday morning, down $0.07 (-3.38%). Year-to-date, ACB has declined %, versus a 24.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Eric Bowler
Eric Bowler is an accomplished journalist providing in-depth insights for more than two decades. Over the past several years his focus has been on the marijuana industry, with a special interest in cannabis growth stocks. His daily coverage of the industry keeps him on top of the key trends with the goal of helping investors make well-informed decisions.