Both Aurora and Canopy enjoyed tremendous gains in 2017, with Aurora stock skyrocketing more than 340% and Canopy stock soaring nearly 250%. So far this year, Aurora is up by a double-digit percentage, but Canopy's share price is down.
Past and even present performance doesn't necessarily tell us anything about the future, though. Which of these two marijuana stocks is the better choice for investors now? Here's how Aurora Cannabis and Canopy Growth compare.
The case for Aurora Cannabis
Aurora Cannabis is arguably the hottest marijuana stock on the market right now. One reason why: The company is peacefully acquiring CanniMed Therapeutics (NASDAQOTH: CMMDF) after it initially attempted a hostile takeover. This acquisition will bring another 7,000 kilograms per year of immediate capacity to Aurora and 19,000 kilograms annually of funded capacity.
Another reason Aurora is leading the pack among marijuana stocks is its impressive sales growth. The company recently reported sales more than tripled year over year in its fiscal 2018 second quarter. And sales didn't just come from the Canadian marijuana market. Over one-fifth of Aurora's total revenue stemmed from sales from its Pedanios subsidiary in the German market.
But what's the case for buying Aurora Cannabis stock now? Its growth should pick up huge momentum. For one thing, it's still really early for the company's sales in international markets, particularly Germany. But the coming catalyst that gets more attention is Canada's pending legalization of recreational marijuana.
Like several of its peers, Aurora has been racing to expand capacity to meet what is expected to be enormous demand for recreational marijuana. That's why the company is acquiring CanniMed. It's also why Aurora plans to increase capacity at its Aurora Sky, Aurora Vie, and Lachute facilities.
In addition, Aurora is scrambling to build its retail presence. The company recently completed a strategic investment in Liquor Stores N.A. Ltd. (LQSIF), which operates 231 retail liquor stores throughout Alberta. Liquor Stores is converting some of its existing retail locations into cannabis retail stores and establishing new cannabis retail stores.
Aurora Cannabis should be good position to claim a significant market share in the Canadian recreational marijuana market, which is projected to top $5 billion annually. If it's successful in doing so, the stock should keep on sizzling.
The case for Canopy Growth
Canopy Growth has jockeyed back and forth recently with Aurora for the largest market cap among Canadian marijuana growers. But there's no question which company currently has the highest sales. Canopy wins hands down.
In its latest update, Canopy announced the highest quarterly revenue ever reported in the Canadian marijuana industry. Although the company's year-over-year sales growth of 123% wasn't as strong as Aurora's growth of 201%, Canopy's revenue total nearly doubled that of its rival.
Canopy Growth could be the best international play among marijuana growers. Like Aurora, the company has a presence in the German market through its Spektrum Cannabis Germany subsidiary. Canopy also expanded into Denmark, Spain, Australia, Brazil, Chile, and Jamaica.
There are several other areas where Canopy ranks first in the industry. It is the only marijuana grower to date to secure multi-year supply agreements with four leading provinces. Canopy is the only Canadian marijuana grower so far to attract a sizable investment from a major company. In October, big alcoholic beverage maker Constellation Brands (STZ -0.14%) paid $245 million for a 9.9% stake in Canopy.
The company also claims the largest inventory of cannabis among Canadian marijuana growers, which it's stockpiling in anticipation of legalization of recreational marijuana this summer. In addition, Canopy has a bigger cash stockpile than its peers, which could position it well for further acquisitions and growth in capacity.
If you're scared by steep valuations, neither Aurora Cannabis nor Canopy Growth is a good pick for you. And if the prospects of dilution from additional stock offerings give you the jitters, you'd probably be better off staying away from both stocks. On the other hand, if you're like many who are convinced that the growth opportunities are enormous for marijuana growers, you should look at both Aurora and Canopy.
But which is the better stock between the two? My nod goes to Canopy Growth. I think Canopy's scale and cash position give it an edge. However, I think both stocks could generate nice gains this year with legalization of recreational marijuana in Canada and continued international expansion. In the showdown between these two major marijuana growers, it's possible that both end up winners.