Aurora Cannabis (ACB 0.62%) is the second-largest marijuana stock by market cap, is projected to lead all growers in peak annual output with at least 662,000 kilos, based on company estimates spanning its 14 grow farms, and has a more diverse combined production and distribution presence than any other cannabis grower. And yet, I'm not a fan.

Despite nearly doubling its market cap since the beginning of 2018, Aurora's share price has actually declined. This is the result of Aurora continuously diluting its shareholders by financing a multitude of acquisitions with its own stock and little, if any, cash component, as well as the company reporting relatively steep quarterly operating losses.

But for as much as I've suggested avoiding Aurora Cannabis as an investment, I do see paths where it could become worth buying. Here are three such scenarios that would make the most popular pot stock a buy.

A handful of dried cannabis buds lying atop a messy pile of fifty dollar bills.

Image source: Getty Images.

1. A brand-name company makes a significant equity investment

Perhaps one of the biggest head-scratchers of all in the cannabis industry is that Aurora Cannabis is one of the few large pot stocks not to have landed a brand-name partner or equity investment as of yet. Despite reports of discussions between Coca-Cola (KO 0.08%) and Aurora in September 2018, no deal ever materialized.

My personal take on this is that Aurora's penchant for acquisitions, and therefore its consistent issuance of new stock, would have diluted Coca-Cola, or any equity investor, after their initial stake. Even with anti-dilution rights in place, it would have made life difficult for a brand-name company, even one with pockets as deep as Coca-Cola, to maintain its equity stake in Aurora. This is the probable reason we haven't yet seen a deal take place, and why Coca-Cola likely walked away.

Aurora did hire billionaire activist investor Nelson Peltz, the founder of Trian Fund Management, as a strategic advisor in mid-March. Peltz has keen knowledge of the food and beverage industry, and would potentially be the perfect person to bridge the gap between the food or beverage industry and the pot industry. Peltz's hiring firmly suggests that Aurora is looking for its thus-far-elusive deal.

But landing a brand-name partner isn't enough to make Aurora Cannabis a buy. It would need to secure a very sizable equity investment, more or less on par with what Cronos Group scored from Altria, to become a buy. This deal netted Cronos $1.8 billion in cash.

The simple point being that if Aurora were able to secure capital without having to regularly issue its common stock or convertible debentures, it could execute on its business strategy without burying existing shareholders. When this risk of significant dilution is off the table, Aurora can be considered as a possible buy.

A dollar sign shadow being cast on a pile of cannabis leaves.

Image source: Getty Images.

2. Aurora Cannabis reaches recurring operating profitability for at least three quarters

A second scenario where Aurora Cannabis steps out of the doghouse and into favorability is one where it generates multiple quarters (at least three) of operating profits.

You'll note that I said operating profits and not a net profit. The reason? Like most marijuana stocks, Aurora's results can be legally tweaked by a number of factors, including fair-value adjustments on biological assets, and the revaluation of derivatives and warrants. These are one-time benefits and costs that don't directly tell us much about how Aurora's day-to-day operations are performing. What investors should really care about is Aurora's net revenue, gross profit before fair-value adjustments, and overall profit/loss after recurring operating expenses are deducted from gross profit (sans fair-value adjustments).

According to Aurora's management team, the company is on track to deliver recurring positive EBITDA (earnings before interest, taxes, depreciation, and amortization) beginning in the fiscal fourth quarter (April 2019-June 2019), but that's not the same thing as operating profitability. Based on Wall Street's declining profit estimates, Aurora isn't even guaranteed to deliver the green in fiscal 2020.

Chances are that Aurora Cannabis won't have an opportunity to accomplish this feat of three successful quarterly operating profits until 2021, at the earliest, and it's possible that the cannabis landscape will have changed considerably by then. Nonetheless, recurring profitability on an operating basis, compounded with Aurora's leading production, would certainly give it buy consideration.

A person holding cannabis leaves in front of a globe of the Earth.

Image source: Getty Images.

3. International sales surpass domestic revenue

The final scenario that would possibly make Aurora Cannabis a buy is if international sales surpass domestic (Canadian) revenue.

As noted, no other marijuana company has as diverse a presence in foreign countries as Aurora. Between production, exports, distribution and research, it has its fingers in 24 different countries, including Canada. This should lead to a relatively diverse revenue stream over the long run.

But here's the thing: Between rampant supply issues in Canada, and the need to continue building up infrastructure in international markets, overseas sales are practically nonexistent in the early going. Health Canada is counting on growers like Aurora to satiate domestic demand before they turn to exports. This is unlikely to happen anytime before 2021 or 2022.

Eventually, domestic Canadian production is expected to lead to dried-flower oversupply, whereby these overseas markets will come in handy as a means to offload excess cannabis. When this happens, it's possible that the more than 40 countries worldwide to have legalized medical cannabis could significantly buoy Aurora's sales. The moment the company becomes more reliant on high-margin global medical marijuana sales and less dependent on the domestic market is when Aurora Cannabis might be worth buying.