Where will Aurora Cannabis be in 1 year?

A constant failure to achieve profitability has led most investors to abandon the Canadian pot producer stock Cannabis Aurora (NYSE: ACB) in 2020. Since the start of the year, the stock is down more than 68%. The reference Horizons Marijuana Life Sciences ETF is down only 15% during this period.

The company’s second quarter 2021 results release arguably contained several negative developments that disappointed investors. But I think Aurora’s future a year from now may be brighter than today’s financial data suggests. Let’s see why taking a small stake in Aurora could pay off in the medium term now.

Another drab neighborhood

During the first quarter of 2021, Aurora’s net sales grew to C $ 67.8 million, compared to C $ 75.2 million in the first quarter of 2020. The company managed to sell 16,139 kilograms of cannabis during the quarter, an increase from 12,463 kg sold in the first quarter of 2020. Unfortunately, Aurora has not been able to take advantage of this increase – in the last year the price of dried cannabis sold by the Canadian producer fell sharply from CA $ 5.68 per gram to CA $ 3.70 per gram due to excessive supply from industry players.

Investors who expected better news may well be disappointed. On an annual basis, Aurora sells approximately 64,500 kg of dried cannabis, which is well below the 187,500 kg of dried cannabis that it currently produces each year.

Citing poor consumer demand, the company recently had to shut down cultivation facilities it had invested in and downgrade the value of cannabis subsidiaries it had acquired, resulting in huge losses. In the first quarter of 2021, the company had total assets of more than C $ 5.6 billion. A year later, Aurora’s total assets have fallen to just C $ 2.8 billion.

That’s not all; the company is still deeply unprofitable, with a net loss of C $ 107.2 million compared to a net profit of C $ 10.4 million for the same period last year. Even though Aurora has about C $ 250 million in cash on its balance sheet as of November 6, it’s almost entirely thanks to the money it has raised by issuing more shares.

In the past 12 months, Aurora’s outstanding shares have grown from less than 100 million to almost 161 million. Raising more cash at the expense of investors to offset losses is not a long-term sustainable strategy.

So why consider Aurora?

Aurora stock actually rose more than 70% last week on investor optimism over a possible “green wave” in the United States. For starters, Vice President-elect Kamala Harris had previously indicated that President-elect Joe Biden’s administration would decriminalize the pot at the federal level. Additionally, Arizona, New Jersey, South Dakota, and Montana voted to legalize recreational cannabis in the 2020 election, putting additional pressure on neighboring states to do the same.

Investors seem to think these developments are bullish for Aurora. The company’s business has plummeted trying to meet consumer demand that never materialized, so it makes sense that Aurora could make a comeback now that its products may be needed in America.

Points to remember for investors

The ability to expand into a market 10 times the size of Canada (in terms of population) is lucrative for Aurora. In May, the company made the first entry into the US legal jar market by acquiring cannabidiol maker Reliva, which sells its products in more than 20,000 outlets, for $ 40 million.

Overall, there are still a lot of fundamental issues surrounding Aurora, and investors certainly shouldn’t expect the company to stop diluting its stock or turn a profit anytime soon. However, the share’s selling price valuation of just 4 also does not reflect future growth opportunities. For adventurous marijuana investors with a high risk, high return outlook, this might not be a bad time to open a small stake. For others, I would advise waiting until the business is making money or realizing substantial revenue growth before moving.