Aurora Cannabis Inc. (ACB), the Canadian cannabis seller with a $7.7 billion market value and a No. 2 position in recreational pot sales, is poised to become one of the first major cannabis companies to post a profit. Meanwhile, many of Aurora’s rivals, including its largest rival Canopy Growth Corp. (CGC), have gushed expanding losses, as outlined in a recent Barron’s report.
“At a time when EBITDA losses across the industry are elevated, we have a strong appreciation for ACB’s operational rigor,” wrote Cowen analyst Vivien Azer in a recent note. She expects the company to turn a profit as soon as this quarter.
Largest Cultivation Footprint in Canada
Aurora, which has seen its stock increase more than 50% year-to-date (YTD) despite a recent pullback, is among the best at keeping a variety of products in stock in Ontario, British Columbia, and Alberta, noted the Cowen analyst. Azer also highlighted the fact that Aurora has the largest cultivation footprint in Canada. This sprawling infrastructure makes the company less vulnerable to a weaker recreational market, as it can boost its revenue in the medical market, she wrote.
When Aurora reported that it sold 9 metric tons of cannabis in Q1, it missed the Street’s average forecast for revenue and earnings. Bears cited concerns over an ongoing supply shortage with the potential to delay Aurora’s pathway to profitability, as outlined by Barron’s.
Azer is among the bulls that see the concern as exaggerated and merely a short-term hurdle. She names Aurora her “top marijuana pick,” expecting the company to reach positive EBITDA in the current quarter. By comparison, the company’s top rival, Canopy Growth, reported a larger EBITDA loss of 98 million Canadian dollars, or roughly $74.3 million, when it reported its most recent numbers earlier this month.
Strong Early Stage Execution in Nascent Industry
The Cowen analyst rates Canopy shares at outperform, indicating that its premium relative to other cannabis companies is justified by its “near term path to profitability in conjunction with strong early stage execution within the nascent Canadian cannabis adult use market.”
She adds that more supply will be needed to meet demand from brick-and-mortar stores, as well as new market share from those who previously bought from illicit sellers. A new wave of cannabis products including vapes and edibles, which are set to be evaluated by Health Canada starting this fall, should also provide a boost for Aurora, said Azer. Expanded operations in Germany and Australia, as well as a speculated partnership with a major strategic partner expected to be brokered by advisor Nelson Peltz, should also provide a boost to shares.
Other Positive Drivers
Other analysts highlight at least three catalysts that could send Aurora skyrocketing higher, as outlined by The Motley Fool. These positive tailwinds include the potential for Aurora to link with a larger partner, entrance into the burgeoning hemp market, and progress in U.S. cannabis legalization.
So far, Aurora has largely been left out of the headline deals other cannabis producers have inked with blue chip companies in the alcoholic beverage and tobacco industries. To name a few, Constellation Brands Inc. (STZ) injected $4 billion in Canopy Growth, Altria Group Inc. (MO) partnered with Cronos Group (CRON), Tilray inc. (TLRY) landed a partnership with Anheuser-Busch InBev (BUD) and Novartis (NVS), and Hexo Corp. (HEXO) linked with Molson Coors (TAP). Since bringing on billionaire investor Nelson Peltz in March, who has experience with many major consumer brands, a similar deal for Aurora looks more likely.
Despite growing optimism in the cannabis space, obstacles remain, especially in the U.S. market, the biggest and most crucial for cannabis companies. Any negative regulatory news could present a major setback for cannabis growers, as they continue to scramble to meet demand and build out infrastructure.