Chances are that you’d struggle to find a faster-growing industry right now than legal marijuana. With global sales expected to grow by 38% in 2019, and more than double between 2018 and 2022, the cannabis industry has all the makings of a once-in-a-generation investment opportunity.
Then again, choosing what stocks to sink your money into in a nascent industry is never easy. In many instances, the most popular stock in a fast-growing industry isn’t the one that winds up being the best long-term investment…
Marijuana stock Aurora Cannabis has gained quite the following
Among millennials, there’s no marijuana stock more popular than Aurora Cannabis(NYSE:ACB). Aurora does have a lot of factors working in its favor, including industry-leading run-rate production. The company was already producing at a yearly run rate of 150,000 kilos at the end of March, and looks to be on track for at least 625,000 kilos per year by the midpoint of 2020. With the exception of Canopy Growth, there isn’t another grower with even half the annual production potential of Aurora Cannabis.
To build on this point, Aurora also gets the nod for being relatively efficient with the cannabis it is growing. A recently announced expansion at its flagship Aurora Sun campus in Medicine Hat, Alberta, to 1.62 million square feet will see a minimum of 230,000 kilos produced each year. That’s better than 140 grams per square foot, or 40% higher than the industry average of closer to 100 grams per square foot of dried flower yield.
The company is no slouch on the international front, either. Having production or distribution operations in 24 countries places Aurora at the top of the list in terms of geographic diversification. This overseas presence could come in particularly handy if and when dried flower oversupply and commoditization becomes a problem in Canada a few years down the road.
Forget Aurora Cannabis: There are better pot stocks to consider buying
But it’s also a company that’s heavily reliant on inorganic growth, and it finances these acquisitions by issuing its common stock like Monopoly money. As a result, Aurora’s market cap keeps growing, but shareholders are left twiddling their thumbs as the share price goes nowhere fast. Making matters worse, Aurora is unlikely to be profitable in fiscal 2019 or fiscal 2020, on an operating basis.
If you want in on the marijuana craze, there are three growers that offer a much more attractive value proposition than Aurora Cannabis.
To begin with, OrganiGram Holdings (NASDAQ:OGI) brings more intrigue to the table, even after hitting an all-time high last week, than Aurora Cannabis.
Based in New Brunswick, OrganiGram is the only major grower in an Eastern Canadian province (by “major,” I’m talking about more than 100,000 kilos a year projected at its peak). As such, the company should have geographic advantages over pretty much every other grower in Eastern Canada. While New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador aren’t exactly highly populated provinces, early data shows that cannabis use rates in these provinces are considerably higher than the national average.
OrganiGram is also one of the few growers that can blow Aurora out of the water when it comes to production efficiency. At the company’s lone campus in Moncton, New Brunswick, OrganiGram expects to produce 113,000 kilos across roughly 490,000 square feet of cultivation space. That’s better than 230 grams per square foot, or more than double the industry average. By utilizing three growing tiers, the company is able to maximize what growing space it will have, once all grow rooms are complete by the end of the year.
Another area where OrganiGram one-ups Aurora is the fact that it’s one of just four marijuana stocks to have supply deals in place with every Canadian province.
Add this all up, and it’s easy to see why Wall Street expects OrganiGram to be one of the most profitable growers on a per-share basis in 2020. Valued at less than 32 times forward earnings, but with superior crop yield and a renewed focus on derivative production (which may soon include cannabis-infused beverages), OrganiGram looks to be a much more attractive stock than Aurora…
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