If you think the past seven weeks have been ugly for investors, narrow your focus a bit and take a gander at cannabis stocks.
Through the first quarter of last year, more than dozen marijuana stocks had gained at least 70% over a three-month period, and sales projections for legal cannabis kept creeping higher. Then, the bubble burst, with most pot stocks losing anywhere from 50% to 95% of their value over the past 12-plus months…
Perhaps the poster child of the boom-bust nature of cannabis investing is Aurora Cannabis (NYSE:ACB). Aurora, the most popular stock by a long-shot on millennial-focused online investing app Robinhood, has lost approximately 92% of its value since mid-March 2019. Now valued at a mere $0.80 per share (albeit still equating to a $960 million market cap), the question has to be raised: Could Aurora Cannabis go to $0?
Aurora Cannabis was once pegged for greatness
At one time, Aurora’s outlook was promising. The company had 15 prospective cultivation sites around the world with a peak annual run-rate that was likely nearing 700,000 kilos. Inclusive of Canada, the company also had a production, research, export, or collaborative presence in 25 countries. Both the peak production potential and overseas reach were far and away tops in the marijuana industry. Having two dozen international markets at its disposal was designed to ensure that domestic oversupply never became a problem.
Aurora Cannabis also wound up hiring billionaire activist investor Nelson Peltz as a strategic advisor in March 2019. Peltz has a long history of investing in food and beverage companies, which made him the perfect individual to potentially bridge a partnership or equity investment with a brand-name consumer-packaged goods company. This hiring came just months after Constellation Brands sunk $4 billion into Canopy Growth as an equity investment, and Altria Group purchased a 45% stake in Cronos Group for $1.8 billion.
Then there was Aurora’s management commentary, with longtime (and now-former) CEO Terry Booth predicting at least 625,000 kilos of run-rate output by the end of the company’s fiscal 2020 year (June 30, 2020), and a real chance at positive adjusted EBIDTA by the end of calendar year 2019.
It all looked great on paper, but not one lick of this vision is still in play today.
Absolutely nothing has gone right for the most popular pot stock
In November, Aurora Cannabis announced that it would be halting construction on two of its largest production farms (Aurora Sun in Alberta and Aurora Nordic 2 in Denmark) in order to conserve capital. Not long thereafter, the company placed the 1-million-square-foot Exeter greenhouse on the sale block for about $17 million Canadian. Exeter is a vegetable-growing greenhouse acquired in the MedReleaf purchase that Aurora has yet to retrofit for cannabis production. These construction halts, and the presumed sale of Exeter, essentially takes more than 400,000 kilos of peak annual output off the table.
As for Peltz, his signing as a strategic advisor has resulted in absolutely nothing. With the exception of landing a role as a supplier for PAX Labs Era vaping device, Aurora Cannabis hasn’t attracted a brand-name partner, nor has it received a coveted equity investment.
And as for those visions of positive adjusted EBITDA, they’ve been thrown completely out the window. In fact, the real question, after perusing Aurora’s balance sheet, is whether it has the ability to even survive?
On one hand, Aurora’s overzealous acquisition strategy has left it with…
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