Back on Jan. 22, I urged investors to cash out some of their huge gains in Aurora Cannabis (NYSE:ACB). Since that time, ACB stock surged another 75% higher before giving up all of those gains. At this point, the stock is down about 1.7% from where it was when I wrote that story in January. And I’m right back giving the same advice I did then.

If you’ve held onto your Aurora shares, you’ve definitely left some profits on the table in the past month. But nothing major has changed from a fundamental standpoint for Aurora since January. With the stock up 179% since the beginning of November, it’s not too late to be taking some of your ACB stock profits off the table.

ACB Stock News

The biggest news for ACB stock since I wrote that story in January was Aurora’s fiscal second-quarter earnings report on Feb. 11.

Aurora reported 11% revenue growth for the quarter. The company reported an earnings before interest, taxes, depreciation and amortization (EBITDA) loss of C$12.1 million, or about $9.6 million.

The good news is that a C$12.1 million loss is a marked improvement over the C$53.1 million loss Aurora reported in the same quarter a year ago. The bad news is that a loss is still a loss.

Perhaps the most bullish part of Aurora’s report is that it is no longer hemorrhaging cash. Its cash burn in the quarter was down 74% to just C$70.5 million. Aurora’s dried cannabis sales came in at 15,253 kilograms, up 61% from a year ago.

Cantor Fitzgerald analyst Pablo Zuanic says underlying business trends for Aurora are on a positive trajectory.

“We believe the company has international optionality more than the Canadian [legal producer] average,” Zuanic says. “That said, the sector downdraft may provide better entry points for those wanting to make use of the ACB relative valuation discount.”

Cantor Fitzgerald has a “neutral” rating and $14.20 price target for ACB stock.

Same Old Problems

Things may be looking much brighter for Aurora than they were a year ago. But that’s not really saying much. Aurora still has plenty of problems.

For years, Aurora has been the king of cannabis stock dilution. From mid-2014 to the end of 2020, Aurora’s outstanding share count increased from 1.35 million to around 184.2 million. That’s roughly a 13,500% increase. Quarter after quarter, ACB stock investors have to watch management chip away at their ownership stakes.

Until Aurora can reach profitability, the company will be forced to continue cranking out shares and selling them for whatever price they can get. Unfortunately, investors have no idea if and when Aurora will be profitable. Management originally said it would be profitable in 2020, but it has now pushed back that target multiple times.

At the same time Aurora is struggling with its funding, other Canadian LPs have financial backing from investors with deep pockets. Canopy Growth Corp (NASDAQ:CGC) has the backing of international alcohol giant Constellation Brands (NYSE:STZ). Tobacco giant Altria (NYSE:MO) has a 45% ownership stake in Cronos (NASDAQ:CRON). Aphria (NASDAQ:APHA) and Tilray (NASDAQ:TLRY) are in the process of a blockbuster merger. The combined company will have roughly $456 million in cash, a big initial cushion to work with.

How to Play It

Not only have Aurora’s cash flow problems produced massive dilution, it may cause an even bigger problem down the road. The biggest long-term catalyst for the cannabis industry is potential U.S. federal legalization. That legalization may happen sooner than many investors previously expected. Aurora’s constant struggle to fund its operations leave it with limited resources to invest in the U.S. market. When the U.S. floodgates open, Aurora may be left in the dust as other Canadian LPs go all-in on investing in establishing a first-mover advantage.

I fully believe ACB stock may have tremendous long-term upside. But don’t put all your eggs in the ACB stock basket. There is simply too much risk and uncertainty in the cannabis space to identify the biggest long-term winner at this point.

I continue to recommend cannabis investors hold a basket of at least four or five of the best Canadian LPs and U.S. multi-state operators. Prioritize factors like positive cash flow, low debt levels and growth rates, none of which are particularly appealing when it comes to ACB stock.

It may feel like you’ve missed out by not selling at least some of your Aurora shares when they were near $19 in early February. But try to keep some perspective. When ACB stock was trading under $4 back in October, most investors would have jumped at the opportunity to take some profits off the table at the current price of around $10.

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