Growth pains in Aurora Cannabis (ACB) are real, but the potential is undeniable



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<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Aurora Cannabis (CBACam Battley, managing director, told the Marijuana Business Daily in a recent phone interview that the company was seeking to enter the US CBD market in the near future. "Data-reactid =" 11 "> Aurora Cannabis (Aurora Cannabis)CBACam Battley, chief executive, told the Marijuana Business Daily in a recent phone interview that the company was focused on the upcoming entry into the CBD market in the United States.

In a few quarters, the company will catapult well beyond all its competitors in terms of production capacity. It is expected to produce more than 625,000 kilograms per year by the beginning of 2020.

Given the slow pace of Canada's licensing process for retail outlets and the current shortage of GMP-compliant cannabis for sale in the foreign market, the company will need to find more market opportunities for its quantity. growing products.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Meanwhile, ACB has an optimistic d & # 39; This is broken down into 4 "buy", 5 "hold" and 1 "sell" valuations over the past three months, and we can also see from TipRank that the average price target for analysts is 8 , $ 07 – 45% increase over current share price.Check out the ACB price targets and analyst ratings on TipRanks.) "data-reactid =" 14 "> At the same time, ACB obtained a moderate consensus rating on moderate street buying with cautious optimism, broken down into 4" buy "valuations, 5" hold "valuations and 1 "sell" valuation over the last three months, and we can also see on the TipRanks that the analysts' average price target is $ 8.07, a 45% increase over the current price. the action (see the price targets and ratings of ACB analysts on TipRanks).

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Cannabis application in Canada"data-reactid =" 23 ">Cannabis application in Canada

Some drew the wrong conclusion regarding the demand for cannabis in Canada, saying that the supply already exceeded the demand, but this is simply not true at the moment.

The reality is that demand remains strong and the lack of retail outlets in which to sell cannabis limits the potential sales of Aurora and other suppliers in the country.

Although this is slowly starting to improve, it will take much longer to realize the full potential. The legalization of the derivatives will help, but it will have no impact until the first quarter of 2020 and it remains to be seen how much current sales will be cannibalized by higher margin and more desirable derivatives sales.

Whatever the case may be, this should translate into improved financial results for the company. This will also be leveraged by the increase in the number of stores where cannabis can be purchased.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Certifications of Good Manufacturing Practices (GMP) from the European Union"data-reactid =" 28 ">Certifications of Good Manufacturing Practices (GMP) from the European Union

In a few weeks, Aurora announced that it would have two other GMP certifications in Canada. This will provide more products that can be sold in international markets requiring compliance with these standards.

As mentioned above, global sales were smaller than expected due to the GMP-compliant medical cannabis shortage.

The two new facilities – Aurora Vie and Aurora River – will add a combined annual production capacity of GMP-compliant medical cannabis of approximately 32,000 kilograms. This will go a long way in boosting sales in global markets.

It will absorb some of the vast supply that will become available in 2020.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The American market"data-reactid =" 33 ">The American market

A number of analysts and investors are waiting to see what Aurora is going to do in the US market after having hinted at significant changes a few quarters ago.

Cam Battley said this:

"What I'm waiting for is that in a very short time, we will enter the United States with another entry point, an important point.

"We are studying the strengths and weaknesses of (multi-state operators) and other business models. So we are very focused on the short-term laser on hemp derived CBD, because it can be done now. It's perfectly acceptable now. "

At the moment, I do not see Aurora at a competitive disadvantage, because the US CBD market is very commonplace at the moment, and any attempt to differentiate with strong partners could position it. to generate strong growth in sales under the right conditions. .

One of my concerns is what Battley said about entering the US in the same way that Canopy Growth did with Acreage Holdings. In my opinion, it would be a big mistake.

It would not bother me if it did it only with the CBD, but if it went beyond the assumption that the United States will soon legalize cannabis at the federal level, it could be disastrous in the long run. The reason is that it would block capital that could never get a return on investment

My point of view based on the search for political sentiment in the United States is that there is no consensus or political will to make pot legalization a priority. In addition, there is a legitimate opposition to high levels that will not disappear soon.

But if Aurora picks up a market or does business with large US-based CBD companies, Aurora sales will increase significantly. It will also offer an outlet to its huge stock for 2020.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Conclusion"data-reactid =" 47 ">Conclusion

Aurora is now in a race between increasing supply levels and various points of sale. I think Canada, even if it is extremely slow in terms of licensing retail outlets, will grow sufficiently when a lot of Aurora's excess supply is sold in that market. .

Europe, which is an excellent long-term market, will be even slower because of the availability of GMP-compliant cannabis, which takes a long time to develop.

This means that it will be very important for Aurora to find alternative markets to compete on, and there is no larger market than the US cannabis market.

I do not see any over-supply issues for Aurora over the next three quarters, but in the second half of 2020, this could become a problem if growth in Canada and Europe is slower than expected and Aurora needed a good deal of time with an American company.

Aurora Cannabis is full of good things, but in the short term, there will be growth problems because of some things over which it has no control, and the conclusion of an agreement with an American company that is consistent with its strategy. non-disclosure. giving up control to secure the investments of large companies like Canopy Growth did with Constellation Brands.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Visit TipRanks' Stock trend pageand find out which companies are the biggest analysts on Wall Street. "data-reactid =" 53 ">Visit TipRanks' Stock trend pageand find out which companies the best Wall Street analysts are currently studying.

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