The cannabis industry is riding high after a truly remarkable 2018. Even though pot stocks had a less-than-memorable year, with 10 marijuana stocks losing at least half of their value, the weed industry gained legitimacy like never before following the legalization of recreational marijuana in Canada. Once considered a taboo topic, legal marijuana is very much here to stay. That means investors who pick the right marijuana stocks stand to make a pretty penny.

Then again, investors also understand that not every pot stock will be successful. Ambitions are high in the early going for every direct and indirect player, but history suggests that all major growth trends will have losers. Perhaps no company is teetering on the edge of greatness or disaster more than Aurora Cannabis (ACB -6.05%).

An up-close view of a flowering cannabis plant in an indoor grow farm.

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What would it take for Aurora Cannabis to become a buy?

Aurora Cannabis is currently projected to lead all Canadian growers in peak annual output, with the company conservatively calling for "at least 500,000 kilograms" in annual yield. However, following its purchase of ICC Labs in South America, which had 92,000 square feet of operational growing capacity and north of 1.1 million square feet of under-construction capacity, 700,000 kilograms of peak annual output is more likely, in my view.

If production capacity was the end-all for marijuana companies, Aurora Cannabis would undoubtedly be a stock for investors to buy. Unfortunately, numerous other factors come into play -- e.g., share-based dilution and a lack of operating profits -- beyond just production that have led yours truly to regularly proclaim Aurora a stock to avoid.

But I'm not averse to changing my opinion on Aurora Cannabis. Here are four factors that would encourage me to become bullish on what's possibly the most polarizing pot stock of all.

A magnifying glass being held over a balance sheet.

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1. A serious decline in share-based dilution

My biggest issue with Aurora Cannabis has been its complete disregard for its shareholders.

Since pot stocks have had virtually no access to nondilutive financing options from banks, they've regularly turned to bought-deal offerings to raise capital. A bought-deal offering involves the sale of common stock, convertible debentures, stock options, and/or warrants in order to raise money. While successful in doing so, bought-deal offerings can immediately (through common stock offerings) and over time (via convertible notes, options, and warrants) balloon a publicly traded stock's outstanding share count. This winds up weighing on existing shareholders and pushing down the earnings per share of profitable companies.

Since the end of fiscal 2014 (Aurora's fiscal year ends on June 30), the company's outstanding share count has skyrocketed from 16 million to nearly 962 million. Once its latest purchases of ICC Labs, Whistler Medical Marijuana, and Farmacias Magistrales are factored in, along with any exercised notes, options, or warrants outstanding, the company could easily have 1.1 billion shares outstanding.

This growth-at-any-cost strategy has been a disaster for long-term Aurora Cannabis shareholders. What I'd like to see is the company take a step back from its aggressive capital-raising strategy and work with the puzzle pieces it's already assembled. At this point, share-based dilution of less than 10% on an annual basis should be considered a victory for investors.

An assortment of legalized Canadian cannabis products on a counter.

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2. Demonstrable evidence of organic growth and brand building

Secondly, Aurora Cannabis needs to show that it can work with its acquired businesses to organically grow the brand.

For example, the company's recently announced $132 million purchase of Whistler Medical Marijuana was hailed by Wall Street and investors as a smart move given Whistler's established brand in British Columbia. However, I view it differently. The Whistler buyout to me suggests that Aurora Cannabis doesn't have the ability or confidence to organically develop, market, and build recreational cannabis brands on its own. Don't get me wrong, I do believe there's value to bringing the Whistler brand into the fold, but I want to see Aurora Cannabis demonstrate that it can add value to what's already in its portfolio rather than paying a ridiculous premium to continue acquiring capacity and brands.

Arguably my favorite move Aurora made in 2018 was the announcement that it would organically construct a 1.2-million-square foot facility in Medicine Hat, Alberta, that would be capable of 150,000 kilograms of peak annual output. Yes, organic builds take a bit longer than retrofits or acquisitions, but owning greenhouse consulting and engineering company Larssen better allows Aurora to internalize its costs and maximize growing efficiency.

Two businessmen in suit shaking hands as if in agreement.

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3. A brand-name partnership

Next, it's time for Aurora Cannabis to join its large peers and land itself a brand-name partner in the beverage, snack, tobacco, and/or pharmaceutical industry.

Last August, Molson Coors Brewing and HEXO formed a joint venture to develop cannabis-infused beverages, with Anheuser-Busch InBev and Tilray following suit in December. We also saw Constellation Brands invest $4 billion in Canopy Growth, with tobacco giant Altria taking a 45% stake ($1.8 billion) in Cronos Group. Partnerships and equity investments abound, but Aurora has yet to land a joint venture or equity investment of its own.

Why, you ask? It's certainly not for lack of interest, with Coca-Cola rumored to be interested in forming a partnership or taking an equity stake in Aurora this past September. My suspicion (and this is purely a guess) is that Aurora's penchant for share-based dilution has pushed any would-be brand-name investors away, as they'd see their stake diluted over time.

A deal with a brand-name company in any of the aforementioned industries would add validation to Aurora's long-term business model and perhaps give the company a much-welcomed cash infusion that would keep it away from the secondary markets.

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4. A substantially smaller operating loss, or even a profit

Lastly, but naturally, I'd like to see Aurora Cannabis take genuine steps to improve its bottom line.

Before you start proclaiming Aurora Cannabis as profitable, let me stop you there. Aurora has been generating per-share profits in recent quarters as a result of nonrecurring benefits, such as the revaluation of investment holdings or fair-value adjustments on its biological assets as a result of International Financial Reporting Standards accounting. These aren't duplicable or recurring sources of profitability for the company.

According to the company's most recent quarterly report, Aurora wound up losing nearly 112 million Canadian dollars on an operating basis -- and the operating results of marijuana stocks are all that really matter. With Aurora still heavily involved with capacity expansion, acquisitions, and an international push, general and administrative expenses and marketing costs are liable to remain very high in the near term.

If the company can make a concerted effort to improve its margins by focusing on alternative cannabis products (cannabis oils, softgel capsules, and perhaps edibles and infused beverages once they're legal later this year), while at the same time being more mindful of expensing, its losses could shrink considerably by the end of calendar 2019.

If Aurora Cannabis were to demonstrate improvements in all four of these factors, then, and only then, I'd reconsider it as a potentially attractive investment opportunity.

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