Marijuana Stocks, Safer After Latest Analyst Ratings?

It doesn’t take more than a minute to see that marijuana stocks have had a tough go of it in 2019. Some of the top pot stocks have tumbled to or near new 52-week lows, and the latest slew of ratings paint an interesting picture for some of these big names in cannabis. Just this week Stifel analysts cut their rating from Hold to Sell and dropped the price target from C$7 to C$5 for Aurora Cannabis (ACB). After reporting quarterly results, The Street now sees that the industry may be in need of streamlining.

Though Aurora reporting considerable revenue growth of 52% over the previous quarter, losses mounted. The company reported that it had lost C$12 million before interest, taxes, depreciation, and amortization. This was more than double what most analysts were expecting. Stifel analyst Andrew Carter stated, "We believe these recent results and the negative implications for the outlook suggest real difficulty for Aurora to execute at a level to maintain its current premium valuation.”

But this may not be as black and white as some analysts are suggesting. According to Chief Financial Officer Glen Ibbott, Aurora’s losses can be attributed, in part, to the scarcity of retail stores in certain provinces. "We are still at the mercy of the timing of the retail rollout," he said. "We're excited that Ontario is licensing new stores...but there should be hundreds."

Light At The End Of The Tunnel For Marijuana Stocks?

Despite this, the long-term argument supporting marijuana stocks may still be intact.  Many of the companies on top of the growing list of marijuana stocks have seen revenues increase along with costs. But this scenario could be getting better.

As with Aurora, though it reported a loss greater than analysts had expected, it was still a significant improvement from the previous C$36+ million loss in the third quarter.  And now the sector is on the verge of its next big legalization event in Canada.

This coming October, Canada will fully legalize cannabis derivatives to open up an entirely new piece of the cannabis industry. It will certainly hold a place in the marijuana stocks news feed. "With the Canadian launch of derivative products in the coming months, we have made the necessary investments to ensure readiness and focus on a variety of value-added products," Ibbott explained.

After reporting results, we can clearly see that Aurora may be in a better position than in previous quarters. Cash cost to produce per gram sold declined 20% sequentially to $1.14 per gram in Q4 2019. Production volume also increased by over 85% and gross margins jumped by 3% to 58% sequentially. It’s patient base also grew and as of its report, Aurora has just under 90,000 active registered patients.

Marijuana Stocks: You Be The Judge

Despite what analysts are saying, the results appear to paint a much stronger picture in favor of cannabis industry evolution. Using Aurora as a gauge, margins are increasing, the patient count is growing, costs per gram produced are declining, and revenue is climbing.

The bleak road being suggested by certain analysts with higher expectations may be just one thing to consider but not completely base your investment decisions on. Right now, Aurora may be a victim of its own success as it relates to the speed that the cannabis industry has grown by. Assuming expectations and growth rates normalize, the next few quarters will be something to watch closely in our opinion.

“Analysts in the space have been notoriously off the mark in the past year & investors need to take them with a grain of salt," said Jason Spatafora, The Wolf Of Weed Street & Co-Owner of MarijuanaStocks.com. "As for Aurora, while I don’t hold the stock I do hold $6 call options as a means to limit capital exposure. If there’s one thing I stick to as someone that has traded this sector since the beginning, it’s that the fall prices are usually much better than the summer. ACB has been the beneficiary of that since 2016."

Other marijuana stocks to watch include industry leaders like Canopy Growth (CGC), Organigram Holdings (OGI), and Hexo Corp (HEXO). Other pot stocks to keep in mind include companies like Charlotte’s Web (CWEB) (CWBHF). Its business model has focused entirely on CBD extract products. The company’s sales are mainly targeted in the United States, however, the next move made by Canada could open further access for companies like Charlotte’s Web.

Other things to factor in are that the full potential of the US cannabis market has not materialized yet. There are still plenty of companies waiting with bated breath for the US to flip the switch at a federal level. We also still have yet to see what comes of Canada’s cannabis derivative product segment. Our guess is that just like legal cannabis, there will likely be some growing pains to address the market early on.

The owner of Marijuanastocks.com is long Aurora Cannabis