Although many companies are vying for recognition in the growing legal cannabis market, only a handful have managed to set themselves apart from the competition. Aurora Cannabis (ACB), a licensed cannabis company listed on the Toronto Stock Exchange, is among the small group of companies that have emerged as early market leaders. Even so, when it comes to the cannabis industry, every success seems to be met with an equal and opposite setback. One need only look at Aurora's stock price for evidence of this. In mid-October, the price of ACB climbed above CAD$15 a share. This morning on December 17, the company opened at $5.73.
So what happened to Aurora Cannabis in those two months? In this article, we break down the factors that contributed to Aurora's stock price fall and explore whether the company — and cannabis — are poised for a comeback.
What Happened to Aurora Cannabis?
On Nov. 12, 2018, Aurora Cannabis released company earnings for the first quarter of fiscal year 2019. The company reported what seemed to be an impressive 260% spike in revenue year over year. What's more, Aurora reported that shareholder earnings had increased to more than CAD$104 million, roughly 28 times more than the company's previous report. But two trading days later, the company's stock price fell by more than 15%. Why?
Investors likely realized that much of Aurora's profit for the period in question was the result of a one-time gain based on the disposition of a large asset. When it comes to operations, Aurora's figures weren't so rosy: the company revealed that it lost almost CAD$112 million as it spent money to increase its capacity and acquire other marijuana outfits. Skittish investors likely wondered whether Aurora's capabilities will match its outsized aspirations. If so, the company could continue to impress in future quarters by proving investors wrong. If not, there may be trouble ahead for this early leader in the cannabis industry.
What Else is Weighing on Aurora?
November started out excellently for legal cannabis companies. The U.S. midterm elections inspired new confidence in the strength of the industry, as Michigan became the tenth state to legalize marijuana for recreational use and Missouri and Utah followed suit by legalizing cannabis for medicinal use. Shortly after the midterms, long-time and vocal cannabis opponent Jeff Sessions resigned as U.S. attorney general. Although his replacement had not been announced at the time, the federal government seemed less likely to crack down on legalized marijuana in his absence. While Aurora and other cannabis companies received minor bumps from the news from the election day, these gains leveled out quickly.
There are other reasons why Aurora's stock may have plunged, as well. The last few weeks have been highly turbulent for markets in general. In November, the typically steady S&P lost 2%, with declines continuing into the holiday season and the market downturn has claimed value from legal cannabis companies across the board. Similar to Aurora, Canopy Growth Corp. (CGC) has also fallen from a mid-October high of $60 per share down to $30.59 as of market open this morning.
What Does That Mean for Cannabis?
For most investors, the salient question is this: what does Aurora cannabis mean for the rest of the industry? Unfortunately, Aurora's business model and the legal cannabis industry are both too new to predict. The company has lofty ambitions, but it's difficult to say whether it will win out over competitors. For now, the best thing that investors can do is follow Aurora's acquisitions and expansion plan and track future earnings reports as closely as possible. The next reports will include the crucial time period after Canada's recreational marijuana legalization date of Oct. 17, 2018, so there is much that remains to be seen.