It only takes a little research to understand why investors might get excited about investing in Aurora Cannabis (NYSE:ACB). The bullish case for ACB stock really starts and ends with two simple words: addressable market.
According to Grand View Research, the medical marijuana market alone was valued at $11.4 billion in 2015. The firm projects a compound annual growth rate (CAGR) of 17.1% between through 2025. In a separate report, the firm projects the global market size for legal marijuana to reach $73.6 billion by 2027 and growing at CAGR of 18.1%.
This corresponds neatly with a Pew Research study from 2019 that showed opinions toward legalization of marijuana have essentially inverted in the last 10 years. Around 2009 approximately 60% of Americans disapproved of legalizing marijuana as opposed to about 32% that supported legalization. But last year those numbers were essentially reversed.
Unfortunately, the reality of legalization is very different from consumer opinions. And that’s why ACB stock remains a very troubled stock.
Another Bump In the Road
Aurora is in the middle of a restructuring effort. The company is calling it a right-sizing effort. But essentially it boils down to the company trying to find a way to manage its supply glut. Back in May, Aurora conducted a reverse stock split. They also delivered an earnings report that sufficiently pleased investors.
At that time, I questioned the rally. In doing so, I asked investors to ask themselves if one earnings report made Aurora Cannabis lucky or good? Sadly, it’s appearing like more of the former.
After a three-day spike, the stock has been on a slow, steady decline. And it’s getting dangerously close to its early May levels on news that its quarterly revenue (whenever the company reports) will be lower than the prior quarter. And the company will be recording a $1.8 billion goodwill impairment charge.
Will Robinhood Come to Rescue ACB Stock?
It’s impossible to ignore the impact that the trading app Robinhood has in moving certain stocks. In the case of ACB stock, Robinhood seems particularly relevant. Call it serendipity, but Robinhood investors are (in general) part of a generation that is more likely to advocate for the legalization of marijuana for all purposes. These are the true believers.
Last month, Ian Bezek wrote about how Aurora Cannabis dropped from first to 11th on the Robinhood dashboard after its reverse 12-for-1 stock split. As Bezek theorizes, about half of Robinhood investors didn’t own at least 12 shares of ACB stock. As a result on the first trading day after the split, the number of Robinhood users that owned shares of the stock was cut in half.
And it appears that these investors are not flooding back to the stock. Perhaps it’s because they’re taking fliers on any of the dozen or so companies that are getting close to a potential vaccine for the novel coronavirus. However, this is an area to watch.
Simply put, if Robinhood investors take renewed interest in Aurora Cannabis it could provide a floor for the stock.
The Long-Term Case Remains
The long-term bullish case for cannabis exists, and I believe that’s particularly true for medicinal marijuana. But as much as cannabis may be an irresistible force, it faces a hard-to-move object in the United States regulators and the legislative process. This may get a huge boost depending on the result of the November election. But progress is still likely to be measured in years rather than months.
Normally I would be steering investors away from Aurora Cannabis as hard as I could. And I still can’t tell you that it’s a great use of your investment dollars. But if you have some speculative money, it may be a better option than investing in the vaccine stock-of-the-month club. But understand that an investment in ACB stock is a long-term bet on a company that for the moment has very limited options to deliver the profit it is promising by next year.