Aurora Cannabis (TSX:ACB) (NYSE:ACB) is a head-scratcher for several reasons; one of the biggest ones is a lack of a major partner or equity investment. At present, Aurora stock is currently selling for $7.57 USD, down 2.32% on the day.
Aurora Cannabis Head Scratcher
Aurora is the second-largest marijuana stock by market cap, and for its size, it has yet to secure any major investment from a leading drinks or foods brand.
Looking around, it’s clear why this is a strange occurrence in this industry. Aurora Cannabis is one of the few large pot stocks not to have landed a brand-name partner or equity investment as of yet.
To put it in perspective:
- Canopy Growth (TSX:WEED) (NYSE:CGC) secured a $4 billion investment from drinks maker Constellation Brands (NYSE:STZ) in 2018.
- Cronos Group (TSX:CRON) (NASDAQ:CRON) secured its $1.8 billion investment from tobacco maker Altria (NYSE:MO).
- Even much smaller rival HEXO Corp (TSX:HEXO) (NYSE:HEXO) has made a significant deal with beverage giant Molson Coors (NYSE:TAP).
There were talks that Coca-Cola (NYSE:KO) may come on board with ACB stock, and the pair sat down to talk in September 2018, but no deal ever materialized.
Stock Dilution is a Problem
The problem here is that, arguably, Aurora Cannabis needs capital because stock dilution is becoming a major problem for investors. The company’s expansion efforts come with a price, and it has financed several acquisitions using its own stock and very little cash component.
If Aurora Cannabis secures capital from a major brand partnership, it can deliver on its promises without investors paying the price. As analyst Sean Williams says, “when this risk of significant dilution is off the table, Aurora can be considered as a possible buy.”
Of course, this is just one train of thought. There are still reasons to like Aurora stock. The company will likely lead all growers in terms of peak annual output with an expected annual output of at least 662,000 kilos.
And further, it has the most diverse “combined production and distribution presence” than any other cannabis grower.
What are your thoughts on Aurora stock?
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