It has been a rollercoaster ride for many of the cannabis stocks in recent days, and one of the bigger surprises last month was the rally in Aurora Cannabis, long regarded as the second biggest cannabis company behind Canopy Growth (TSX:WEED) (NYSE:CGC).
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Canopy Growth released its fiscal fourth-quarter results for 2020 last week, and shares declined due to a sequential drop in sales. That being said, Canopy could still be the better stock than Aurora despite the rally in the latter’s stock in recent weeks. Here is a closer look at the reason why it may be so.
One of the most important factors in favor of Canopy Growth is that a behemoth like Constellation Brands is an equity partner in the company. Constellation, which is a major player in the beverages market in the United States, has helped the company with the development of cannabis-infused beverages. Moreover, if and when marijuana is legalized in the United States, Canopy is going to have a massive advantage due to its partnership with Constellation. On the other hand, Aurora has no such partner, and that could be a significant drawback.
Another major factor in Canopy’s favor when weighed against Aurora is the fact that the company’s boasts of a massive cash balance by cannabis industry standards. Canopy’s cash pile stands at CA$2 billion, and the same stands at only CA$230.2 million for Aurora. The two companies are not profitable yet, but Canopy can afford to burn through a lot more cash to achieve that in the future.
Last but not least, Aurora stated that it is going to achieve positive EBITDA this year. On the other hand, Canopy withdrew its projections for the year with a view to generating positive EBITDA. For Canopy, there could be more upside to the stock if it does achieve positive EBITDA, but it might not be so for Aurora. In other words, Canopy has played the ‘expectation game’ expertly.