Aurora Cannabis (NASDAQOTH:ACBFF) has provided plenty for investors to like recently. Shares of the Canadian marijuana stock are up around 360% over the last 12 months.But is Aurora Cannabis a smart stock to buy? Here are three things that investors really need to know about this sizzling-hot marijuana stock before taking the plunge.
1. Why the stock has soared
Aurora completed its initial public offering (IPO) in 2014. Its stock proved to be a big loser over the next year. Even after Aurora gained a license to provide medical marijuana from the Canadian government in November 2015, its stock performance wasn’t really noteworthy.
Things improved quickly, though, beginning in August of last year. That might not seem like the best time for Canadian marijuana stocks, since the country began allowing citizens to grow marijuana legally at home for medical purposes around the same time. However, three positive news items from Aurora generated excitement among investors.
First, it announced that it was acquiring CanvasRx, Canada’s largest medical marijuana patient outreach service. This deal put Aurora in a great position to reach a much larger patient base. Second, the company completed a round of financing for net proceeds of $23 million that the company said it planned to use in expanding operations. Third, Aurora gross monthly revenue topping $1 million for the first time.
Around this same time, marijuana stocks in general began to take off, partly fueled by anticipation of more U.S. states voting to legalize medical or recreational marijuana in the November elections. Although Aurora’s primary focus is on the Canadian market, its stock benefited from the overall marijuana stock boom.
2. Future opportunities
The most obvious key opportunity for Aurora Cannabis is potential legalization of recreational marijuana in Canada. Prime Minister Justin Trudeau is pushing hard to fulfill a campaign promise to allow recreational marijuana in the country. If the current legislative effort succeeds, recreational marijuana could be legal in Canada in July 2018.
As a current license-holder for providing medical marijuana, Aurora Cannabis should be in good position to also obtain a license to provide recreational marijuana. Professional services firm Deloitte estimates that the retail marijuana market in Canada could reach $8.7 billion annually. This presents a huge growth opportunity for Aurora, even if plenty of other companies also secure licenses for providing recreational marijuana.
Another opportunity for Aurora is in Germany, which legalized medical marijuana earlier this year. Germany plans to rely solely on imports for supply medical marijuana until it can establish state-regulated operations. Aurora acquired Pedanios GmbH, a leading German wholesale importer, exporter, and distributor of medical cannabis in May 2017, a move that gives it a solid stake in the potentially large German medical marijuana market.
Then there’s the U.S. market. Aurora entered into a partnership in 2015 with AJR Builders Group to build a new marijuana production and processing facility in the State of Washington. Washington is one of several U.S. states to legalize both medical and recreational use of marijuana. 
3. Major risks
Aurora Cannabis faces quite a few risks of which investors should be aware. For one thing, the company isn’t profitable — Aurora lost $1.8 million in the first quarter of this year on revenue of $5.2 million. There’s no guarantee that it will ever reach profitability.
There is also considerable opposition to Trudeau’s effort to legalize recreational marijuana in Canada. One major issue relates to how to measure the levels of marijuana in the blood to determine if drivers are impaired.
It’s also possible that Aurora could simply lose out to competitors. Canopy Growth(NASDAQOTH:TWMJF), for example, is another Canadian medical marijuana provider that is expanding in Canada and targeting the German marijuana market. Canopy could have an advantage in that it acquired major German marijuana distributor MedCann last year.
Of course, the risks in the U.S. market are also substantial. There’s the possibility of the Trump administration cracking down on states that have legalized marijuana. Even if nothing happens on that front, larger, better-funded rivals such as tobacco companies could potentially enter the market.
Aurora Cannabis could very well be a huge winner in the coming years. However, these risks mean that the chances are also significant that won’t be the case.
credit:fool.com
