Investing in cannabis stocks was seen as a lucrative way to beat the broader market once pot was legalized in Canada three years ago. However, since the start of 2019, Canadian marijuana stocks have been…
among the worst performers on the TSX for a variety of reasons. While the prospects of marijuana legalization at the federal level in the U.S. will be mouthwatering for cannabis investors to say the least, here’s why I think these domestic giants will continue to trail the broader markets in the next year.
The first stock on my list is Aurora Cannabis (TSX:ACB)(NYSE:ACB). This marijuana giant is valued at a market cap of $1.65 billion and is trading 95% below its record high. Aurora Cannabis, similar to most other Canadian pot producers, is grappling with mounting losses and slower than expected revenue growth.
While its sales have risen from $55 million in fiscal 2018 to $278 million in fiscal 2020, its operating loss has widened from $80 million to $487 million in this period. This accelerating rate of cash burn led to severe shareholder dilution for ACB investors. Aurora Cannabis has raised equity capital several times in the last few years, increasing its outstanding share count from 1.3 million shares in June 2014 to 198 million shares right now.
Aurora Cannabis is now looking to focus on high-margin medical marijuana products that will help it improve profit margins. But as the company will reduce its product portfolio, its sales are forecast to fall to $255.5 million in fiscal 2021.
In the second quarter of 2021…
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