Aurora Cannabis (NYSE:ACB) and Cronos Group (NASDAQ:CRON) aren’t exactly investors’ favorites right now. Both stocks plunged in 2019, with Aurora sinking 56% and Cronos falling 26%.
However, the situation could look better for Aurora and Cronos in 2020. Which of these two marijuana stocks is the better pick now…
The case for Aurora Cannabis
Let’s first address the biggest challenge for Aurora Cannabis — its lack of profitability. The company’s losses have caused it to borrow heavily and issue new shares, which dilutes the value of existing shares.
However, Aurora has quite a few things going for it. It claims the second-highest market share in the Canadian adult-use recreational marijuana market. The company is a leader in Germany’s medical cannabis market. And Aurora ranks first among cannabis producers in production capacity.
Although Aurora isn’t profitable, the company boasts the highest gross margin in the industry. In its fiscal 2020 first quarter, Aurora reported a gross margin of 58%. The company’s high-tech cannabis facilities enable it to keep growing costs down. CFO Glen Ibbott noted in Aurora’s Q1 conference call in November that the company “can compete strongly in any market situation and would still deliver healthy returns at pricing that would not be sustainable for others.”
One major headwind for Aurora should die down considerably in 2020. The lack of an adequate retail cannabis environment in Ontario has been a big problem for Aurora and other major Canadian cannabis producers. However, the province is issuing more licenses for retail cannabis stores in 2020, a move that should significantly boost Aurora’s recreational marijuana sales.
At the same time, Aurora should be a big winner in Canada’s “Cannabis 2.0” market for cannabis-derivative products. The company has launched vapes and edibles, including baked goods, chocolates, gummies, and mints. Look for increasing Cannabis 2.0 sales for Aurora throughout 2020.
Aurora’s lack of a major partner has hurt it in some ways. However, it also arguably makes Aurora a top team-up candidate for big consumer packaged goods (CPG) companies seeking to enter the cannabis or CBD markets. One Wall Street analyst even projects that Aurora’s share price could double if the company picks up a major CPG partner.
The case for Cronos Group
While Aurora hopes to snag a big partner, Cronos Group already has one with tobacco giant Altria (NYSE:MO). And this partnership is probably the most important reason to consider buying Cronos stock.
For one thing, Altria’s cash — it invested $1.8 billion for a 45% stake in Cronos Group — puts Cronos in a much better financial position than most of its peers, including Aurora. Although Cronos isn’t consistently profitable yet (and any paper profits the company reports usually come with an asterisk), it shouldn’t have to worry about raising additional capital with nearly 2 billion in Canadian dollars in cash, cash equivalents, and short-term investments.
The relationship with Altria also opens up lots of doors for Cronos. For example, Cronos will sell its new PEACE+ hemp CBD brands in the U.S. using Altria’s retail distribution network. Thanks to the big tobacco maker, Cronos’ CBD products will hit the shelves of close to 1,000 U.S. retailers.
Altria’s big investment also paved the way for…
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