Is Aurora A Buy At These Prices, Or Have They Burnt Out?

Today Aurora (ACB.T) announced the acquisition of Uruguay based cannabis company ICC Labs (ICC.C). Aurora intends to acquire all of the issued and outstanding common shares of ICC for $1.95 per share equalling a purchase price of approximately $290 million.

Aurora will be getting a multitude of benefits from this deal and still their stock has only moved 0.7% as of 11:45 AM EST today.

Did Aurora go too hard in 2017 and burn out, or is now the perfect time to buy? We will have a look at what Aurora’s competition has done lately, take a look into Aurora’s fundamentals and come up with a few arguments for and against buying this stock right now.

From today’s press release:

  • Significant expansion of low-cost production and processing capacity: ICC is expanding rapidly, with both established facilities and a number of projects nearing completion to bring the estimated production capacity to over 450,000 kg per annum, adding significant value to Aurora’s funded footprint:

    • Two greenhouse facilities: currently operational – approximately 92,000 square feet
    • Three outdoor grow sites, with a potential total area of over 800 acres, 590 acres of which are in Uruguay and which are being prepared for cultivation start later this calendar year
    • Two facilities currently under construction, adding 124,000 square feet of greenhouse production in Colombia and a 1,000,000 sq ft facility in Uruguay

Strong Foundation to Capitalize on the Significant Global CBD Wellness Market Opportunity

  • CBD Rich Production: Uruguay is the only country where regulations currently permit the cultivation of CBD-rich hemp on a commercial scale, allowing licensed producers to grow hemp with THC concentrations of up to 1%, providing a significant yield advantage over global competitors. ICC’s deep background in pharma and the ability to grow low-cost CBD-rich hemp at very large scale, positions the companies exceptionally well to capitalize on global opportunities in the high-growth CBD wellness market.
  • CBD Brand and Distribution: ICC recently launched its BIDIOL brand of CBD products, and is developing a broad international distribution network, including a presales agreement to export product to Mexico, a market with over 125 million people.
  • Significant Extraction Capacity: ICC is progressing well towards the completion of a state-of-the-art large-scale extraction facility with capacity to process 150,000 kg of CBD feed per annum. Phase I of the facility is anticipated to be completed in October 2018, with the full facility online and operational by late 2018.
  • Free Trade: ICC’s new CBD extraction facility is strategically located approximately five minutes from the Canelones international airport and within Uruguay’s “Science Park” free trade zone, exempting facility exports from any applicable local tax on exports and imports.

Science, High-margin Products and Strong Genetics

  • The First South American GMP Compliant Science Lab: ICC is close to completing South America’s first state-of-the-art cannabis science laboratory, designed to the highest international standards and in compliance with applicable GMP standards. Soon to be certified, the facility will provide an early mover advantage over other producers in South America. to drive sales to international cannabis markets.

  • Product Diversification: ICC are leaders in South America, offering  a broad portfolio of dried flower and higher margin products, including tablets, softcaps, ointments, creams, drops, infused syrups, and patches.

  • Genetics: ICC have secured a portfolio of high CBD strains that are exclusive to ICC in South America, and are highly sought after.

 

Aurora VS.

Aurora has had an extremely weak 2018 compared to its competition. In the last month alone companies like Canopy (WEED.T), Cronos (CRON.Q), Aphria (APH.T), Hexo (HEXO.T) and Tilray (TLRY.Q) have gone on massive runs. Ever since Constellation Brands upped its investment in Canopy to 5 billion dollars this summer, the sector has been on a tear and Aurora hasn’t done a whole lot.

Aurora

 

Canopy

 

Cronos

 

Aphria

 

Hexo

 

Tilray

Is Aurora A Buy?

Aurora is one of the most well known and legitimate cannabis companies, making them far less risky than a penny stock. Aurora’s current fundamentals are actually quite healthy compared to the competition.

Company Market Cap
(Billions $CAD)
Price/Book Price/Sales
Canopy 14.5 12.3 145.8
Tilray 8.3 203.6 251.8
Aurora 8.3 6.2 87.3
GW Pharma 4.1 8.2 232.8
Aphria 3.9 3.3 83.4
Cronos 3 11.4 309.2
CannTrust 1.1 6.1 18.5
Hexo 1.1 3.5 71
TGOD 1.6 5.4 /

I spoke to an investment advisor friend from RBC last week who said for the $250,000+ clients, they have kept them out of cannabis stocks until now. He said that could change once legalization hits.

These types of investors want relatively safe investments with low risks. This is why companies like Canopy, Aurora and Aphria have much lower risk and would be an attractive addition to a client portfolio post legalization. A lot of the institutional money has been held back for legal reasons. Big banks have largely avoided this sector as many of the products still remain either illegal or grey area. Investing in Aurora now could mean beating a lot of the big money to is about to pour into the sector.

On the other hand…

Aurora’s biggest move so far in 2018 has been the $1.1 billion dollar acquisition of MedReleaf. With the acquired MedReleaf shares Aurora’s current shares outstanding sits at a whopping 944 million, one of the highest in the cannabis sector.

Aurora went very hard in 2017 with promotion, news, hostile takeovers, acquisitions and in the process greatly diluted itself . When Aurora releases news like they did today the stock hardly moves and investors are left wondering if the stock has burnt out. There’s a phenomenon in marketing called ad blindness where people consciously or subconsciously ignore information due to its repetitive nature.

A considerable amount of speculative investors are attracted to the cannabis space because of its high risk, high reward nature. Many investors are looking for the next thing to take off. With Aurora’s share price at nearly half of its 52 week high, it’s not crazy to think Aurora could be the next big mover, but it’s going to take some news that doesn’t get forgotten about 24 hours later.

 

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