Stifel Cautious On Aurora Cannabis Given 'Lack Of A Definitive Strategy' In US

Cannabis stocks are getting more and more attention from Wall Street these days, and Aurora Cannabis Inc ACB received its first coverage from Stifel on Thursday.

The Analyst

Stifel analyst W. Andrew Carter initiated coverage of Aurora with a Hold rating and a C$10 ($7.47) price target.

The Thesis

Despite impressive growth numbers projected in the next several years, Carter said Aurora’s international medical-use growth opportunities are limited outside of Canada and Germany.

“We are cautious on Aurora in the near-term given the company's reliance on the capital markets to execute upon its near-term business plans, the lack of a definitive strategy for entering the U.S. market, and we believe the slower development of the global medical opportunity will yield downside versus consensus estimates,” he wrote in a note.

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For now, Carter said Aurora has an enviable position as the No. 2 Canadian cannabis producer behind top Stifel pick Canopy Growth Corp CGC. He isn't convinced Aurora management fully appreciates the level of investment that will be required to defend that position as the market grows.

Aurora has also yet to secure partnerships with a global consumer or pharmaceutical company. However, the addition of investor Nelson Peltz as a strategic advisor should help remedy the situation, according to Carter.

Carter said Aurora’s valuation has upside only if it can maintain its Canadian market leadership position and its industry-leading margins over time. The company will also need to demonstrate it can be profitable.

Price Action

Aurora shares traded lower by 3 percent to $7.48 at time of publication Thursday.

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Photo courtesy of Aurora Cannabis.