Things Are Going from Bad to Worse for Aurora Stock

ACB has become one of the worst marijuana bets in the market

It’s been a tough year in general for marijuana stocks. Despite resounding calls for widespread legalization, the group has seen investors flee on worries about the industry’s future. Aurora Cannabis (NYSE:ACB) has been a particularly poor performer with Aurora stock losing 76% of its value since March.

Marijuana stocks are in uncertain territory right now for a lot of reasons like political uncertainty and regulatory concerns. But ACB stock has established itself as one of the riskiest of the bunch.

Earnings Fail

Aurora stock’s fiscal first-quarter results confirmed that the firm is on shaky ground financially. Management’s aggressive spending has landed the company in a deep hole of debt that many worry it can’t escape from. The firm recently found a way to cover the 230 million CAD worth of convertible debt coming due in March. Still, it’s a long way from becoming profitable.

The firm has pressed pause on the construction of its Aurora Nordic 2 and Aurora Sun facilities, which is seen saving the firm 190 million CAD. However, that’s likely not enough to save the firm’s sagging balance sheet. Aurora stock’s most recent results showed that cash burn came in around 210 million CAD — 95 million CAD worth of losses from operations and another 114 million CAD loss on capital investments.

That’s troubling because it underscores the fact that ACB is funding its business on borrowed money. Its aggressive growth strategy isn’t panning out. Further, management is failing investors by diluting Aurora Cannabis stock.

Europe Concerns

To make matters worse, Aurora stock was again hit with bad news when German regulators decided to ban the sale of ACB’s medical cannabis until they’ve conducted a review. Apparently, authorities are concerned about the way Aurora extends the shelf life of its products.

That’s a big deal for Aurora stock because Germany represents a significant market for the firm. Outside of North America, Germany is home to the largest medical cannabis market. While ACB says it is expecting to resume sales as normal in early 2020, a definite timeline hasn’t been set. The loss of that critical European foothold, even for a month, could be disastrous for ACB’s current quarter.

Partnership Slowly Slipping Away

I’ve written before about the fact that Aurora stock hasn’t been able to secure any big-name partners to help with cross-industry distribution. That issue is even more true today than it was a year ago.

ACB’s operations need an injection of cash, and the only shareholder-friendly way to get one would be partnership with a larger peer. Aurora stock’s lack of a partner means the firm may be squeezed out when the marijuana market opens up in the U.S.

Competitors like Cronos Group (NASDAQ:CRON) and Canopy Growth (NYSE:CGC) have aligned themselves with big names that have a wider reach within the U.S. market. If Aurora isn’t able to form a similar partnership, it may not be able to elbow its way to the table as regulations loosen.

Plus, the financial stress on ACB is getting progressively worse. That’s making the firm look like an even less attractive partner, further decreasing the chances of linking up with a big name.

The Bottom Line on Aurora Stock

As my colleague Tom Taulli noted earlier this month, Aurora stock could make for an interesting speculative play. Cannabis 2.0 in Canada represents a potential growth catalyst for ACB, and the firm has prepared for the event with a range of edible offerings. Plus, Nelson Peltz has taken the position of strategic advisor for Aurora stock. Peltz’s connections and depth of knowledge in the consumer goods space is certainly something that adds value to Aurora stock.

Aurora isn’t heading to zero, at least not yet. But that doesn’t mean it won’t linger at the bottom in the near term. The firm’s shaky finances and questionable future strategy make it too risky in today’s environment. If Aurora can secure a partner or provide evidence that a turnaround is on the horizon, it might be worth considering. But for now, I think it’s wise to watch from the sidelines until the industry picks up again.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.