Aurora Cannabis (NYSE:) experienced some positive movement at the end of last week, which has been rare for ACB stock throughout most of 2019. The year when investors expected the Canadian cannabis giant to explode along with the legal recreational marijuana market in Canada has instead been a bust.
Its trajectory has been downhill since mid-March, when Aurora Cannabis stock was flirting with $10. On Oct. 14, it closed at $3.51, for a nearly 65% drop in just seven months. With a whopping four positive sessions since then, did it hit rock bottom? Or is there more pain ahead for ACB investors?
Some marijuana companies simply shot themselves in the foot this year. The classic example is CannTrust (NYSE:), another Canadian cannabis producer. After being caught cultivating pot in unlicensed rooms — a completely avoidable issue — CannTrust has been mired in months of scandal that have seen its CEO fired, its chairman ousted and its license to produce and sell cannabis suspended by Health Canada.
But for the cannabis companies in general, the theme for 2019 has been a Canadian recreational marijuana market that has simply failed to live up to expectations. Or, frankly, to come anywhere near expectations.
In November 2017, when it was announced that Canada would make recreational marijuana legal the following October, investors were primed. It was reported that Canadians had spent $5.6 billion on black market pot the year before. Based on those numbers and polls showing strong demand, and $6.5 billion in 2020. Ontario, the country’s largest province, was expecting to have 40 legal marijuana shops in operation by the end of 2018.
At the height of the pre-legalization frenzy in January 2018, ACB stock hit $10.69, which were record highs for what had been a medical marijuana producer that only two years prior had been a penny stock.
The recreational marijuana market in Canada has failed to live up to expectations. In Ontario, where there had been plans to have 40 legal pot shops open by the end of 2018, only 25 were authorized, and by July 2019 some of those had still not opened their doors. That $4.3 billion in sales for 2019 has turned into a pipe dream. For whatever reason (consumer disinterest, preference for black market pot, production startup issues and distribution challenges have all been named as factors), recreational marijuana sales in Canada have come nowhere near predicted levels. Even after hitting record sales in July, StatsCan reports that for the first nine months of legalization, .
ACB Stock: Misery Loves Company
As hopes that the Canadian recreational pot market would be an instant bonanza wore off, Aurora stock took a beating. But it was far from alone, with the rest of the cannabis sector also feeling the pain. Since the end of April, Canopy Growth (NYSE:) is down 58%, Cronos (NASDAQ:CRON) has lost 62% since March and Aphria (NYSE:) is off 49% since April.
Why did so many pot stocks — including Aurora Cannabis stock — peak in March and April of this year? That was in anticipation of the first wave of legal pot shops in Ontario finally opening their doors on April 1.
So, Has Aurora Cannabis Stock Bottomed Out?
While it has failed spectacularly to meet expectations, Canada’s recreational marijuana market is beginning to gain steam with sales on the upswing. In August, the province of Ontario . And the so-called “second wave” of legalized marijuana is launching in Canada, with cannabis edibles and extract products legalized on Oct. 17. Aurora Cannabis has been stockpiling marijuana production to divert to producing edibles, so it’s well positioned to take full advantage of this new market.
whether to buy ACB stock or hold at this point, but with a median 12-month price target of $5.28, the consensus would appear to be that the stock has bottomed out. With Canadian consumers starting to finally show more interest in buying recreational marijuana, cannabis edibles now legal in that country, and a flood of new legal pot shops opening, Aurora Cannabis stock is positioned to stop the slide and begin at least a modest recovery.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
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