Aurora Cannabis (ACB) Is A Significantly Undervalued Stock
Grant Davis |
As of February 2019 all but 17 states in the U.S. have approved either recreational or medicinal cannabis. Many states have fully decriminalized marijuana, and approved both recreational and medicinal cannabis. Canada has fully legalized recreational cannabis.
The legal cannabis industry is akin to the Gold Rush. Dozens of companies have set out to stake their claim in what may become one of the largest global opportunities of the 21st century.
A handful of publicly traded companies have emerged as clear leaders, some sporting billion-dollar market caps. The question is: how can the average person profit from this Gold Rush? Are there any undervalued stocks that might produce massive gains over the coming months and years?
We believe Aurora Cannabis is one of the most undervalued cannabis companies. Let me prove it with some simple math.
Aurora Cannabis currently has a production capacity of 150,000 kilograms of cannabis each year. That output is expected to grow to over 500,000 kilograms by 2020.
As of this writing Aurora Cannabis has a roughly $8 billion market cap. Based on the 2020 production goal, we can ascertain the valuation is roughly $16,000 per kilo. Compare this to Tilray who has annual production of 76,000 kilograms and is valued at roughly $100,000 per kilo. Of course, Tilray has a larger retail footprint and a joint venture with AB Inbev which contributes to its lofty valuation.
Aurora has been on a massive buying spree. Last year, Aurora acquired MedReleaf in a $2.5 billion mega deal, CanniMed Therapeutics for $852 million, and ICC Labs in South America for $290 million CAD. In recent weeks they made another acquisition to further expand their production capacity by purchasing Whistler Medical Marijuana for $175 million CAD.
It should also be noted that Aurora claims over 30% market share in Ontario, and owns four of the largest cannabis products in British Columbia.
We are on the precipice of a multi-year uptrend for cannabis suppliers. Not only is Aurora Cannabis undervalued, but overall growth trends of cannabis consumption will ultimately propel the entire industry higher.
As always, there are some downsides to investing in Aurora Cannabis. While companies like Cronos, Canopy Growth, and a handful of others have sold massive stakes to the likes of Altria Group and Constellation Brands, Aurora has chosen to use debt as their primary source of capital. We are confident that Aurora can easily raise capital. They do however risk falling behind the competition if they choose to wait too long.
If you compare Aurora to any of the top cannabis retailers and suppliers, they are massively undervalued from a production standpoint. As always, perform your own due diligence. Price volatility is expected, and valuations can become irrational at times.