A top analyst recently recommended buying Cronos Group (CRON +0.39%). But Piper Jaffray wasn't so bullish on Aurora Cannabis (ACB 1.44%), initiating coverage of the stock with a neutral rating. It wasn't too long ago, though, that analysts were much more positive about Aurora than they were Cronos.
Aurora has outperformed Cronos by a relatively small margin so far this year. Which stock is the better pick looking ahead? Here's what you need to know about how Aurora and Cronos stack up against each other.
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Production capacity
Aurora Cannabis ranks at the top of the industry when it comes to production capacity. The company is on track to produce at least 625,000 kilograms of cannabis on an annual basis. Aurora isn't there yet, though: It produced around 30,000 kilograms of cannabis for sale in its latest quarter.
Cronos Group lags behind Aurora on this front. The company's current annual production capacity stands at a little over 40,000 kilograms. Cronos should be on track to boost its capacity to over 115,000 kilograms.
Current revenue growth
Aurora expects to report quarter-over-quarter net revenue growth of at least 54% when it announces its fiscal 2019 Q4 results next month. Cronos recently announced that its net revenue in the quarter ending June 30, 2019, more than tripled from the previous quarter.
But while Cronos' revenue is growing faster, Aurora is generating a lot more money. Aurora is likely to report net revenue of close to 105 million Canadian dollars for its latest quarter, compared to only CA$10.2 million for Cronos.
Canadian market position
As you might expect, Aurora has a much larger market share in Canada. The company is ramping up for the launch of the Canadian cannabis derivatives market in October, with a big focus on vapes. Aurora is also developing cannabis-infused beverages, but Chief Corporate Officer Cam Battley said in the company's last quarterly conference call that "considering the anticipated relatively low market share of these products, we're not rushing this, as we'd rather get it right than get there fast, launching a product with limited market resonance."
Cronos is also a key player in Canada, albeit with a smaller revenue base than Aurora. The company, like Aurora, intends to launch vape products later this year. However, Cronos CEO Mike Gorenstein thinks that "[cannabis-infused] edibles will be an important and attractive category in the long term."
International operations
Aurora is a leader in European medical cannabis markets, especially in Germany. The company claims the largest international medical cannabis sales among Canadian cannabis producers. It was also one of only three producers to receive approval to grow cannabis in Germany for the country's medical cannabis market. However, Aurora hasn't yet announced its strategy to enter the U.S. market.
Cronos is also very active internationally, with partnerships and joint ventures in Germany, Poland, and Israel. The company recently announced that it's acquiring four operating subsidiaries of Redwood Holding Group, the maker of the Lord Jones line of premium CBD consumer products. This deal will give Cronos a strong position in the U.S. hemp CBD products market.
Major partnerships
Aurora announced in May that it's partnering with mixed martial arts organization UFC to research CBD products for athletic wellness and recovery. The company also hired billionaire Nelson Peltz as a strategic advisor to help line up partners from outside the cannabis industry. But so far no deals have materialized from this effort.
Cronos, on the other hand, already has a major partner. Tobacco giant Altria (MO 0.36%) invested $1.8 billion for a 45% equity stake in Cronos. This relationship gives Cronos access to Altria's formidable retail experience and its expertise in vaping products. It also provided Cronos with a big cash stockpile to use in expanding.
Better buy
The matchup between Aurora and Cronos basically comes down to Aurora's larger scale versus Cronos' partnership with Altria. I think the relationship with the big tobacco company makes Cronos much more formidable than it would otherwise be. The Altria connection should enable Cronos to carve out a niche for itself in the U.S. market, for example.
Cronos also has a lower market cap than Aurora does. However, based on historical sales and production capacity, I think that Cronos is currently valued at a significant premium over Aurora. I am concerned, though, that Aurora may have to raise more cash in the future in ways that dilute the value of existing shares.
My prediction is that Aurora will find a partner that will help it enter the U.S. hemp CBD market, although it's unlikely any deals will involve an equity investment. I think the opportunities for Aurora teaming up with one or more major players outside of the cannabis industry give it more potential catalysts in the near term. The company's head start in Europe and its industry-leading production capacity should also enable Aurora to sustain its status as a top player on the global stage.
While I continue to like Cronos Group's overall prospects, I think that Aurora Cannabis is the better buy right now.
