At least on two fronts, there's no contest between Aurora Cannabis (NYSE:ACB) and Auxly Cannabis Group (NASDAQOTH:CBWTF). One is market cap: Aurora's market cap is nearly 18 times bigger than Auxly's. Then there's stock performance. So far this year, Aurora is up close to 38%, while Auxly is down 33%.
But market cap and previous performance aren't key factors to use in determining which of these two marijuana stocks is more likely to deliver solid returns in the future. Here's how Aurora Cannabis and Auxly Cannabis Group stack up against each other in the areas that do matter.
The case for Aurora Cannabis
Aurora Cannabis has been preparing for the opening of the Canadian recreational marijuana market for quite a while. The company has been on a major shopping spree, acquiring several small -- and large -- marijuana producers. These deals and its own expansion projects have put Aurora on track to have an annual production capacity of 150,000 kilograms by mid-2019 and more than 500,000 kilograms in the future.
The company should be in good shape to serve the adult-use recreational marijuana market in Canada. Aurora has lined up, in CEO Terry Booth's words, "coast-to-coast supply agreements" with Canadian provinces. In addition, Aurora owns a stake in Alcanna and is partnering with the large liquor retailer to open retail cannabis stores under the Aurora brand name across Canada.
There's also the potential for Aurora to become a major player in the cannabis-infused-beverages market down the road. Canada has yet to finalize regulations for the legalization of cannabis edibles (including beverages). However, Aurora has already attracted the interest of major beverage companies, reportedly including Coca-Cola, as a potential partner in developing cannabis-infused beverages.
Aurora should have even greater growth prospects outside of Canada, especially in Europe. The company already claims a solid presence in Germany -- the biggest international marijuana market other than the U.S. and Canada. Aurora also has European subsidiaries in Denmark and Italy. It's also active in other international medical cannabis markets, including Australia, the Cayman Islands, Colombia, and Malta.
While Aurora Cannabis builds its business both at home and globally, its stock is also about to become more easily available to millions of investors. Aurora recently filed an application to list its shares on the New York Stock Exchange (NYSE). The company expects its stock to trade on the NYSE by the end of October under the ticker symbol "ACB."
The case for Auxly Cannabis Group
Auxly Cannabis Group has been busy, too. Like Aurora, Auxly has made several acquisitions. But the company has also entered into multiple streaming deals in which it provided up-front capital in exchange for a portion of future cannabis crops, future revenue, and/or equity stakes.
One benefit from Auxly's various deals is that they give the company an enviable vertical integration across the cannabis industry. Auxly is involved in upstream cannabis cultivation, midstream extraction and processing, and downstream distribution and retail operations.
And while Auxly's market cap is relatively small, its production capacity isn't. Thanks to its network of streaming partners and acquisitions, Auxly expects to have funded annual capacity of well over 150,000 kilograms, ranking it No. 4 among Canadian marijuana producers based on the company's internal estimates.
Auxly isn't just focused on the Canadian market. It's in the process of buying an 80% stake in Uruguayan cannabis producer Inverell. The company has cultivation partnerships in Colombia, Denmark, Lesotho, Slovenia, and South Africa. And Auxly has distribution partnerships in 22 countries across five continents.
Perhaps the most attractive aspect about Auxly Cannabis Group is that its business model reduces its risk to some extent. If a few of its partners fail, it shouldn't drag Auxly down too much.
Better marijuana stock
Bigger isn't always better. I think that Auxly is the better pick over Aurora Cannabis.
Aurora does have tremendous growth prospects. However, its stock price already reflects that growth potential and then some. Auxly provides a much more appealing bang for the buck at its current valuation.
Both of these stocks are risky, though. I'm concerned that a supply glut could hit the Canadian marijuana market within a few years. And I'm not convinced that international medical marijuana markets will grow quickly enough to prevent companies, including Auxly and Aurora, from getting hit hard by the oversupply situation at home.
Auxly tops Aurora in my book. But I think there are better marijuana stocks for investors to buy that could have lower risk levels.