Today we examine some of the downside and upside potential of investing into Aurora Cannabis Inc. (TSE:ACB), one of the Canadian marijuana stocks
John Brooker | June 25, 2019 | SmallCapPower: Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB) is one of the Canadian cannabis stocks and is the second-largest Canadian cultivator by market cap. ACB is vertically integrated and horizontally diversified across various segments of the cannabis value chain. In an article published on May 24, 2019, we discussed how Aurora Cannabis has a medical cannabis market edge. On June 5, 2019, we went over why Aurora Cannabis Inc’s innovation makes it appealing, and on June 13, 2019, we talked about how Aurora Cannabis Inc’s Global Initiatives Could Make it #1. Recently, on June 20, we discussed Aurora Cannabis’ leadership in hemp production and how the Company should benefit in the long run.
Today, we’ll look at some of potential catalysts and risks that Aurora Cannabis investors could face. These catalysts and risks are possible events that could take place that have the potential to either propel or repress Aurora’s valuation.
Diminishing Regulation Surrounding the Edibles Market Would Play in Aurora’s Favour
Aurora Cannabis Inc’s intensive investment into R&D and product development, such its acquisition of Chemi Pharmaceutical Inc, provides the Company with the scientific capabilities to establish an early-mover advantage in the upcoming edibles testing market. For example, the Canadian Food Inspection Agency (CFIA), currently tests for over 400 different contaminants in food, including pesticides, heavy metals, and other contaminants. Aurora’s facility, Aurora Polaris, is expected to be responsible for the manufacturing of edibles and should be able to adhere to the CFIA rigorous testing guidelines.
An Investment with a Major Beverage Player Could Be Just Around the Corner
Aurora Cannabis remains one of the major LPs without a relationship with a major beverage player. We expect that established beverage companies looking to get involved in the cannabis sector would consider Aurora, given it is one of the few major LPs without a current partnership. At one point, there were rumours that Coca-Cola was in discussions with the Company, yet no agreement materialized.
Stricter International Quality Control Rules Would Further Differentiate Aurora Cannabis
Given that Aurora Cannabis is one of the few cannabis companies that has EU GMP certified facilities, an increase in quality control regulations overseas could enhance ACB’s international market opportunities.
Change in Government Policy Could Hinder Aurora’s Sales
Any changes that could further restrict domestic demand would have a negative impact on Aurora Cannabis’ ability to get its product into the hands of customers. For example, a change in government from Liberal to Conservative in Canada could lead to more restrictions, or even a reversal, in the cannabis legalization policy.
Clinical Study Results Not Supporting the Health Benefits of Cannabis Would be a Huge Barrier to Aurora’s Strategy
Currently, clinical study results are inconclusive regarding the health benefits of medical cannabis. If the scientific data does not overwhelmingly support the health benefits of cannabis, this could be a major blow to Aurora Cannabis, given that so much of its strategy is invested into the Company’s medical operations and expansion.
Risk of International Market Margins Beginning to Deteriorate Rapidly Could Hurt Aurora’s Profitability
It is no secret that margins are likely to deteriorate in the global cannabis industry, as cheaper cost countries in warmer climates begin producing cannabis for export. But if governments throughout the world look to capture the value added, they could easily implement an import tax, which would diminish foreign margins.
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