When Aurora Cannabis' (NYSE:ACB) shares commenced trading on the New York Stock Exchange on Oct. 23, 2018, retail investors were absolutely giddy with optimism. Prior to this uplisting, the Canadian pot titan had already taken a quantum leap forward by acquiring rivals CanniMed Therapeutics and MedReleaf Corp., and secured an important entry point into Europe by gobbling up Germany's largest medical cannabis supplier, Pedanios GmbH.

These landmark transactions pushed Aurora into the upper echelons in terms of production capacity, brand recognition, and number of medical marijuana patients both domestically and globally, transforming it into a truly global organization. Most importantly, these acquisitions appeared to dovetail seamlessly with Aurora's fully automated production facilities and far-reaching commercial footprint that spans nearly every aspect of the legal cannabis space.

A pair of hands gathering a large pile of hundred-dollar bills.

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Aurora, in short, appeared to be building a well-oiled machine that would eventually sport a dominant competitive position over most other licensed producers -- with the one glaring exception being its chief rival, Canopy Growth (NYSE:CGC). Retail investors, in turn, were bidding up Aurora's shares in the first part of 2019 with the hopes of catching the next Amazon.com or Netflix in the early innings.

Driving this point home, the legal cannabis industry is expected to generate no less than $200 billion a year in sales by the end of the next decade, which would make it the fastest-growing market in the entire world over this forecast period. So it's not exactly a stretch to say that the LP that ultimately captures the lion's share of this blossoming market will produce some truly staggering returns for early investors.

Aurora's promise and pitfalls

Aurora's appeal to retail investors is easy to understand. The company now has operations in 25 countries, the leading production capacity in Canada at 625,000 kilograms per year, and an emerging hemp operation in Latin America, as well as a burgeoning home cultivation enterprise via its Northern Lights Enterprises acquisition. Aurora also acquired the highly coveted organic cannabis grower Whistler Medical Marijuana Corporation in the first quarter of 2019. That's a compelling suite of assets, to put it mildly.

Perhaps the best part is that Aurora hasn't sold a big chunk of itself to a deep-pocketed partner. That's key because it means that Aurora might be one of the only original top-tier LPs left standing by 2030. Canopy, after all, is almost certainly going to get bought out by its partner Constellation Brands, and the same scenario is likely to play out between Cronos Group and its partner Altria. A buyout might prove to be a short-term boon for investors, but it ultimately limits the upside potential for early bird investors.

Despite Aurora's warp-speed evolution from a second-tier LP to a titan of the industry in less than three short years, the company's shares have been anything but a stellar investment over the past year. Since uplisting to the NYSE, Aurora's stock has lost over half of its value at the time of writing.

Worse still, Aurora's valuation could be primed for yet another sharp drop in the weeks ahead due to its 230 million Canadian dollars in convertible debentures that mature next March. Long story short, Aurora doesn't have the free cash flows necessary to service this debt organically, and its beaten-up share price means that the debt holders are highly unlikely to go the stock-conversion route.

Shareholders, in turn, will probably end up having to shoulder the bulk of this financial obligation in some form or fashion (another stock offering, more debt, etc.). That's not a promising setup for share price appreciation in the short term -- especially in a market that has turned decidedly against pot stocks in general.

Is Aurora still a potential millionaire-maker stock?

There's no doubt that Aurora's shares are currently entangled in a vortex of unfavorable headwinds. The company's decision to "go big or go home" almost right out of the gate has proven to be a double-edged sword. While Aurora has mushroomed into a sprawling full-service cannabis company, it severely weakened its balance sheet in the process. Besides this convertible debenture issue, for example, Aurora has built up a staggering CA$3.17 billion in goodwill as a direct result of its acquisition frenzy. 

The long and short of it is that Aurora will have to clean up its sheet and the Canadian cannabis market will need to work through its various structural problems (licensing backlog, black-market competition, etc.) before the company's shares get a breather from short-sellers.

That being said, there are two fundamental issues at play that should give early bird investors reason to stay the course during this turbulent period -- and to perhaps keep buying in small batches in the years to come:

  1. Aurora is in no danger of going bankrupt, despite its various financial problems and the structural weaknesses inherent in the Canadian cannabis market at large.
  2. Aurora, in kind, stands to be perhaps one of just three major cannabis companies in the world by the end of the next decade. Big weed, in effect, could end up consisting of Altria, Constellation Brands, and yours truly, Aurora Cannabis.

What's the key investing takeaway? While Aurora's shares may struggle over the next two to three years, investors who hold this pot stock for, say, 20 years should walk away with a rather hefty sum. In fact, it wouldn't be surprising in the least if an initial $10,000 investment -- doled out in small batches over the company's formative years -- ended up producing a million-dollar payday by 2040. Aurora, after all, wouldn't even need to be the top dog in the industry to produce these kinds of life-changing returns. It only needs to remain an independent entity during the industry's inevitable march toward big weed.