Analysts have warned that the worst could be yet to come for Aurora stock as Aurora Cannabis (TSX:ACB) (NYSE:ACB) continues to tank under industry headwinds almost a full year after legalization.
Cannabis Market Drops on HEXO Guidance
The cannabis market took a beating earlier this week after HEXO Corp (TSX:HEXO) (NYSE:HEXO) withdrew its guidance for the fiscal year ahead, leading pot stocks across the board to sink and Aurora Cannabis felt the pinch harder than most. Analysts at Jeffries slashed their price target for Aurora stock in half to $7.00 CAD, or approximately $5.30 USD. While that is above Aurora's current price of $4.85 USD, the reduced outlook does not make for pretty reading for investors.
Underwhelming consumer demand in year one of legalization has not only impacted Aurora's shares, but its inventory is also really overstocked. Aurora Cannabis is already capable of producing 150,000 kilograms of dry flower per year, but it's not the only company with those production capabilities, meaning there are a bunch of major cannabis companies producing more pot than Canada seems willing to buy.
Signs of Life for Aurora Stock?
Aurora stock is down over 60% from a 52-week high of $13.26 back in March, but there are definitely signs of life for what is one of the world's biggest cannabis companies. Aurora's biggest problem is that it is still losing money, but its fiscal fourth-quarter results ended June 30 show that the company has taken steps in the right direction to resolve this. Gross profit and net revenue are both expected to grow over 60% while operating expenses are predicted to fall by 6%. All in all, Aurora's balance sheet should start looking a lot healthier going forward.
Legalization 2.0 comes into effect on October 17, and it is expected to increase the cannabis markets by 65%, or three million new consumers. This provides a huge opportunity for Aurora stock if the company takes the correct steps to capitalize on a whole new wave of cannabis consumers. The company has said it will initially focus on producing edibles and vape products at its soon-to-be-completed Aurora Polaris facility, with further plans to produce cannabis-infused mints, gummies, and chocolates.
It is hard to judge just how much the second phase of legalization will impact the market, just like it was nigh on impossible to predict how the first year of legal weed played out. Despite some analysts cutting projections on Aurora stock, others remain bullish ahead of the 2.0 market. With Aurora stock currently trading near 52-week lows, perhaps the only way is up.
What do you think?
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