Cannabis stocks had a banner year in 2018. And thanks to a surfeit of landmark developments — such as the legalization of recreational marijuana in Canada, Mexico’s slow but steady march toward legalization, and Thailand’s decision to suddenly decriminalize medical marijuana at the tail end of the year — this emerging growth industry appears to be on solid footing heading into 2019.
Still, investors may want to think twice before diving headfirst into this so-called “green rush.” After all, the largest market in North America — the United States — remains off-limits for pioneers like Canada’s Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB) and Cronos Group (TSX:CRON) (NASDAQ:CRON). And that situation won’t change until marijuana is decriminalized at the federal level.
Equally as problematic, these top Canadian producers have yet to even ramp up production levels to the point were they can adequately meet domestic demand, keeping them from being cash flow positive on a consistent basis.
While these two key headwinds are likely to fade with the passing of time, they’re certainly going to shape the industry’s near-term outlook. With this theme in mind, let’s consider if either of these top pot stocks belong in your portfolio in 2019…
A contender for best in class
Aurora, as a company, went through a major metamorphosis in 2018. Through a series of seminal acquisitions that included CanniMed Therapeutics, ICC Labs Inc., as well as MedReleaf, Aurora greatly expanded its international footprint, production capabilities, and product offerings. As a result, Aurora has become the largest cannabis player in Europe. It brought several top-selling recreational products to market in Canada last year and has established a solid product line in the all-important medical cannabis segment.
Most importantly, though, Aurora is now on pace to achieve an industry-best production output of 700,000 kilograms per year within the next few years, thanks in no small part to management’s ultra-aggressive business-development strategy.
The big deal is that Aurora should have the scale necessary to meet its ambitious international expansion. The company’s enormous projected production capacity should also translate into a significant cost advantage over the broader field of cannabis producers. In fact, the company expects production costs to drop below 1 Canadian dollar once all of its facilities become fully functional.
The drawback here is that…
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