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After a sad performance in 2018, Aurora Cannabis (NYSE: ACB) is low this year. The shares of the Canadian marijuana producer have jumped nearly 40% since the beginning of the year. In January, Aurora announced the acquisition of Whistler Medical Marijuana, renowned for its high quality cannabis products.
But is everything so rosy for Aurora right now? Not necessarily. Here are three of the biggest concerns investors should have about Aurora Cannabis.
Source of the image: Getty Images.
1. Poor growth in international sales
Cam Battley, chief executive of Aurora Cannabis, said last year that "not everyone has fully understood" the potential of the global marijuana market for medical purposes. The company emphasizes the fact that it is active on five continents and in 22 countries, with a significant market share in Europe and Latin America. The Aurora management team estimates that the global market for medical marijuana could reach about 70 billion Canadian dollars, or more than 50 billion US dollars.
But despite all this, international sales have barely moved the needles of Aurora Cannabis. Even worse, the company's international sales growth is only mediocre. Aurora released its second quarter results on February 11. International sales accounted for only 6% of total business revenue. And these sales only increased by 1.8% compared to the previous quarter.
Certainly, it is still too early for most international marijuana markets for medical purposes. But Germany, which is Europe's largest market, legalized medical cannabis almost two years ago. Battley said during Aurora's second quarter conference call that Aurora Cannabis is "a medical company in the soul". The company will need to significantly increase its international sales of marijuana for medical purposes in order to prevent its shareholders from suffering heartburn.
2. Slow to enter the US hemp market
The United States legalized hemp in December and the main rival of Aurora, Cover growth (NYSE: CGC), quickly announced its intention to enter the US market. Less than a month later, Canopy issued an update stating that she had obtained a hemp license in the state of New York and planned to invest more than $ 100 million. dollars to build a large hemp production facility.
In the past, Aurora talked about her desire to enter the US market. The company is no stranger to the production of hemp, with several subsidiaries specializing in hemp. According to Brightfield Group forecasts, the US hemp market could reach $ 22 billion by 2022.
With all this in mind, you might think that Aurora Cannabis would live up to the Canopy situation by entering the United States. Nope. Asked about the company's plans during the second quarter teleconference, Terry Booth, CEO, said Aurora "would come in at the right time," he said. "
For Canopy Growth, the time to enter the United States already seems to be both correct and legal. Aurora Cannabis investors should be concerned about the slow pace of the company's expansion into a potentially large new market.
3. No big partner on the horizon
Two of Aurora's main rivals, Canopy Growth and Cronos Group, have landed significant contracts with large equity investments in large companies outside the cannabis industry. A few other Canadian marijuana growers have also formed partnerships with major liquor companies, but with no equity investment.
Aurora Cannabis, however, has been left out of the party until now. Of course, there have been rumors of good deals. Last September, there were even stories circulating that Coca Cola (NYSE: KO) was in discussion with Aurora. But nothing has happened.
Securing an agreement with a major partner is not just a status symbol. Constellation Brands"A $ 4 billion investment has allowed Canopy Growth to have a huge cash reserve to fund its expansion, including, as previously mentioned, in the United States. Longer Aurora would find itself without a big partner – and the large sums that would flow from it – plus investors should be concerned about the company's ability to compete with Canopy globally.
Do not worry?
It might just be a matter of time before these three worries fade.
As international markets for medical marijuana mature, Aurora's sales in these markets will increase. The company may be slow to enter the US hemp market, but an early cautious approach could pay off in the long run. And if global cannabis sales begin to grow as much as many expect, it is likely that large partners outside the cannabis industry will come to Aurora.
However, Aurora's high market capitalization assumes rapid growth for the company. If one or more of these major concerns are not resolved, the price of the Aurora stock could fall, which would make the beginning of the actions in 2019 a momentary.
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