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Aurora Cannabis (NYSE: ACB) is one of the most popular marijuana stocks among retail investors. The good news is that there is a strong justification for its popularity, which is reminiscent of a rock star. Aurora is positioned to become the best dog of its domestic market in Canada in terms of annual sales. The company has also established a leading international footprint and broad product portfolio to take advantage of the next step in the legalization of marijuana in Canada.
Nevertheless, the shares of Aurora have a rather questionable valuation. According to your analyst's estimate, Aurora shares are currently trading between 8 and 13.5 times the company's projected sales for fiscal year 2021. It's about 39 exorbitant value, no matter how you cut it, and unfortunately, Aurora probably does not deserve it.
Source of the image: Getty Images.
Too much uncertainty and risk
The assessment of Aurora's premiums seems to be based on the rather fragile proposition that the next US policy cycle will pave the way for groundbreaking marijuana legislation. Not so fast. The hard truth is that the only presidential candidates in the United States who are clearly in favor of the reorganization of marijuana are leftist Democratic candidates, all of whom are behind in the polls.
Emphasizing this point, former Vice President Joe Biden – and the current Democratic Party presidential candidate – has been categorically reluctant to adopt the legalization of marijuana as part of his platform – despite several polls nationwide showing that a majority of Americans support such legislation. Biden's lack of enthusiasm over this touchstone problem definitely constitutes a dark cloud for the sector.
On the other side of the political divide, President Trump showed little or no interest in the subject during his tenure in the White House. The federal legalization of marijuana will probably remain dormant if Trump is re-elected in 2020 – especially if the Republicans retain control of the Senate. Indeed, marijuana investors should not expect a change in federal policy unless there is a radical change of power in Washington, DC, in 2020, which seems unlikely at this time.
Take away food
The bottom line is that Aurora – as well as its Canadian cannabis counterparts – may have to wait another 8 to 12 years for the American market for recreational cannabis to be truly there. It might look like a black swan scenario, but it's also the most realistic prediction based on the American political landscape.
Think of it in another way. When the Affordable Care Act (Obamacare) came into effect almost ten years ago, many political experts and health analysts felt that this groundbreaking legislation would be a stepping stone to universal health. However, in the current state of affairs, Obamacare undoubtedly enjoys support for life from a political point of view. Efforts to end the federal prohibition of marijuana – despite its many successes over the past five years – could ultimately suffer the same fate as the trend toward universal health in the United States.
The point to remember here is that it might be best to avoid Aurora's actions for the moment. The company has a lot of potential, but nothing says if or when the US market of recreational cannabis will open fully to international players. On the contrary, the old guard of both political parties seems to be content to take the measures that impose on this issue, which does not bode well for legal marijuana companies that practice quality assessments. higher.
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