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Is ACB Stock a Solid Long Term Investment?


Cannabis stock is another option emerging on the stock market. Since its legalization in multiple states throughout the United States and provinces in Canada, new companies have popped up throughout the country. Some companies have done well, taking their operations to the public market, but are cannabis stocks a good gamble for the future? Our analysis of the question looks at the past performance and current market with consideration for what may transpire in the future. Aurora Cannabis, listed under the ticker symbol ACB is a Cannabis company that was recently highlighted by advisors, but are the stocks a solid option for long-term investment? While there is not a yes or no answer at this time there are a few factors that bear consideration.

Overview of Aurora Cannabis

Aurora Cannabis is a Canadian licensed cannabis company, headquartered in Edmonton, Alberta. The business was launched in 2006, led by founders Steve Dobler, Terry Booth, Chris Mayerson, and Dale Lesack. The four co-founders invested their capital in the operation with starting seed funding of $5 million. They purchased 160 acres of land and built the first growing operation. Aurora obtained its cannabis grow license in 2014, becoming the first federally recognized cannabis operation for growing and selling medicinal cannabis products. The operation grew and expanded beyond the borders of Canada to include more facilities in Oceana, Latin America, Europe, Asia, and other parts of Canada. Aurora Cannabis produces four types of cannabis oils. The business has sold its products since April 2017. It produces and sells its products in 25 countries. The founders established headquarters in Canada where taxes are lower. They operate under eight licensed production facilities in Edmonton with five sales licenses, according to Wikipedia. It's the second-largest company of its kind in the world today.

Moving from privately held to publicly traded

The owners took the company public in October 2018, holding its initial public offering on the 23rd. It's listed under the Nasdaq and Toronto Stock exchanges. Globe-News Wire reports that Aurora closed its public offering with gross proceeds of $172,500,000. It sold 23 million units or common shares at $7.50 per share. The figure includes the underwriters' overs-allotment option of 3 million shares.

Changes in executive leadership

Aurora Cannabis Inc. experienced a significant shift in its executive leadership team. Terry Booth, former chief executive of the company, and co-founder resigned from the company. Michael Singer, Executive Chairman of Aurora, took over the job as the interim CEO. The change in leadership occurred in February of 2020. It signaled changes at the helm of Aurora Cannabis. The company is still young and it faces significant challenges including periodic lulls in sales. The company saw ups and downs after the expansion when sales dropped and inventory stockpiled. The problems were blamed on the black market and its noncompetitive pricing. This is likely to be an ongoing issue for Aurora Cannabis and all other legal cannabis operations as no regulations exist in the black market, which is illegal, yet predominant in its functions throughout the world.

Is ACB Stock a Solid Long-Term Investment?

When considering the addition of a stock to your long-term or retirement investment portfolio there are quite a few things to consider. We look at the history of the company, the performance of the stock, trends in the economy, and any other factors that may affect stock performance over time. Cannabis is an emerging market for recreational sales, however, medicinal oils have been sold for years. It's an established niche within the cannabis arena, whereas recreational cannabis is not as widely legalized. We pointed out an additional problem in the black market which has no set price. It's unregulated competition.

Aurora Cannabis in 1921

Going back a year, The Motley Fool analysts confirmed that Aurora Cannabis was moving toward reducing its costs and improving profitability. The company's financial posture had improved for the year over with fewer stock offerings required. The biggest challenge it faced was the negative impact on revenue from the effects of COVID019, which are likely to persist in the short term. As of July 2021, the market cap was $869 million. ACB stock price settled at $3.28 per unit at the close of trading in a snapshot. The conclusion at that time was that Aurora Cannabis had a history of underperformance. The company took another downturn by 15 percent. When compared to some other marijuana stocks, it was a poorer choice in the short term but does this discount its viability as a long-term investment? Although the risk is considerable, Aurora shares made an upward climb to $19 per share during a period of meme hype. The low of $3.28 per share could have been viewed as the time to buy, but not the time to sell.

Hope for Aurora Cannabis

Aurora has a lot going against it, but some positive indicators suggest it may be worth watching. The business has achieved stability securing a higher balance of cash on hand. In 2021, its cash reserves were ample to run the business for two years of financial ups and downs and unstable revenue. Aurora trimmed the fat by $80 million in Canadian dollars in 18 months. Hopefuls were looking for the stock to rally. There was a lot of work to be done to attract investors to the company. It's possible that easing restrictions in COVID-19 may have a positive impact on revenues. As of 2021, The Fool's analysts recommended that investors watch the stock over a few quarters with a wait-and-see approach.

Aurora Cannabis at the close of 2021

A few quarters later, Aurora Cannabis remains the topic of interest for potential investors. The stocks continued to perform poorly. ACB stock declined 100 percent in three years as of December 30, 2021. It's one of Canada's largest marijuana producers operating under legalized operations, according to My Wall St, yet the stocks continue to underperform. On the positive side, the quickly growing market provides a ray of hope for Aurora's revenues to flourish. The company has taken responsible actions with effective results to improve its financial stability. The problem is that operating losses increased during the period with My Wall Street analysts expecting slow growth by market comparison and the likelihood of losing market share. The verdict as of December 30, 2021, is that Aurora Cannabis would be a high risk for investment.

Is Aurora Cannabis set to crash or could it skyrocket?

The Motley Fool revisited the case of Aurora Cannabis toward the end of January 2022. Analysts take another look at ACB stock, acknowledging that 2021 was a poor year for the company and its investors. They also point out that although some marijuana producers did well, many did not. It wasn't the only company to have ups and downs with revenues, sustaining losses. A fair analysis of stocks includes watching the performance and analyzing variables while forecasting potential changes within the landscape of the market. The greater question is whether it's possible for Aurora Cannabis to rally and become profitable or will it continue on a downward spiral? It's a fair question that no one can answer with certainty one way or another. We defer to the facts surrounding the situation to make educated assumptions and predictions based on what is currently known.

Pros for Aurora Cannabis

Aurora Cannabis may regain some ground that it lost to see a rise in its share price because it's one of the largest legal cannabis producers in the country. It's also been putting forth an effort to curb spending and increase profits. These are both positive thoughts to hold onto as you maintain an eye on ACB stock.

Downside and concerns for Aurora Cannabis stock

ACB stock has had more downs than ups in the past three years. It's been off to a slow start. Investors steered clear of cannabis stocks because of the lack of predictability, making the problem worse. Other potential problems for Aurora Cannabis include saturation of the market, and consumers resorting to the black market for marijuana at cheaper prices. The company has lost more than a third of its value as of February 2022. Quarterly earnings reports show worker layoffs and facility closures are on the table in its next plan to recoup the former success of the company. It's still pushing forward with hopes of reaching a positive adjusted earnings balance before the end of the first half of 2023, but that's a little over a year away. The goals are not high for the company. Morale is likely to drop if closures and layoffs occur. A surplus of products is never a good thing, but it's not a signal of the end or impossible odds. We must also look at the negative balance of Aurora Cannabis as it's over $90 million in the red. The Fool's overarching opinion is that it's uncertain whether Aurora stock will crash in the upcoming year. The odds are not in favor of ACB, according to popular opinions. It's not likely to be making a comeback in the upcoming year. It would take a change in federal law of the United States allowing imports of cannabis or some other country legalizing the products to bring about a sizable rally. The consensus is that we're likely to see the stocks continue to turn downward for 2022.

What to do with current Aurora Cannabis investments?

Investors who hold ACB stock are likely considering their best options in light of the dismal outlook by analysts. While there's nobody currently recommending investing in the stock at this point, Zacks suggests that now is the time to hold onto the stock. Analysts give it a ranking of 3. Some experts expect the company's stock to experience an inline return relative to the market. It may be best to hold onto the ACB stocks for a few months and watch the movement. Aurora Cannabis may fall into the overvalued category. While a score of F calls it out as a poor choice for investors, ACB is not yet at that level. Zack's analysis rates it at a D on the Momentum Score. They list it at a Growth Score of B. The score is a little higher and more hopeful than what some others predict for ACB.

Final thoughts

ACB stock has been under the microscope by analysts for the past three years. It's been a wild ride with outside factors affecting the market and pummelling the progress of the second-largest cannabis company in Canada. So far, it's avoided a crash and continues to put forth its best efforts to steer the ship in a more positive direction. Most financial analysts are wary of investing new funds into ACB stock at this juncture, but it's far from being done or giving up. The company is working hard to figure its way out of stormy seas. These actions are nothing new in the public stock exchange. Some analysts offer hope that ACB will catch a few lucky breaks and increase sales beyond the projected 1.2 percent to start digging its way out of the red and into positive revenue standings. As it stands, the bottom line from the experts is that ACB stock is one to keep your eye on and see what it does over the next twelve to eighteen months. There are better stocks to invest in currently for inclusion in a long-term portfolio. We're not ruling ACB stock out of that arena, but it's likely to be a while before we'll know for sure. For now, it's best to hold any stocks you have in the company. Wait and see what happens in the months to come.

Allen Lee

Written by Allen Lee

Allen Lee is a Toronto-based freelance writer who studied business in school but has since turned to other pursuits. He spends more time than is perhaps wise with his eyes fixed on a screen either reading history books, keeping up with international news, or playing the latest releases on the Steam platform, which serve as the subject matter for much of his writing output. Currently, Lee is practicing the smidgen of Chinese that he picked up while visiting the Chinese mainland in hopes of someday being able to read certain historical texts in their original language.

Read more posts by Allen Lee

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