There's no denying that marijuana represents a long-term growth opportunity for investors. There are tens of billions of dollars in cannabis sales being conducted in the black market annually all over the world. If additional countries legalize weed and shuffle these consumers into legal channels, the sky could be the limit for those marijuana companies that are able to really stand out.

Among investors, no pot stock is more popular than Aurora Cannabis (NYSE:ACB). In fact, according to online investing app Robinhood, which has 6 million members and is incredibly popular with millennials, Aurora was the most-held stock, period, earlier this year.

A person holding a magnifying glass over a potted cannabis plant.

Image source: Getty Images.

Here's why Aurora Cannabis has been the most popular pot stock

Aurora's popularity breaks down into three key areas.

First, there's production. The company has 15 production facilities around the world that, if fully operational, could potentially yield close to 700,000 kilos of cannabis per year. With the exception of Canopy Growth and Flowr Corp., Aurora's peak output more than doubles up its competitors. With such robust output, the expectation is that Aurora will have little trouble securing long-term supply contracts in -- and outside of -- Canada.

Secondly, there's the company's incredible international presence. Aurora Cannabis currently has a production, export, research, or partnership presence in 25 countries, including Canada. Only two other pot stocks have even reached the one-dozen country mark, including their home market of Canada. These external sales channels are expected to play a key role in the intermediate to long run, when dried flower becomes oversupplied and commoditized. Without these added sales channels, Aurora could succumb to domestic pricing pressures.

Thirdly, investors appreciate the forecasted efficiency that Aurora's facilities bring to the table. The sheer size of Aurora's campuses should allow economies of scale to yield some of the lowest per-gram production costs in the industry. Meanwhile, yield on a per-gram basis at its largest grow farms should be somewhere in the range of 120 grams per square foot to 140 grams per square foot. Comparatively, most of its peers are liable to produce anywhere from 75 grams per square foot to 125 grams per square foot, making Aurora well above-average in the efficiency department.

A person holding a magnifying glass over a company's balance sheet.

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The craziest Aurora Cannabis statistic you'll ever see

And yet, the most popular cannabis stock on the planet has been taken to the woodshed since hitting an all-time high eight months ago. Following the release of the company's fiscal first-quarter operating results, Aurora shares have now lost more than 75% from their closing high in March.

But this isn't the scariest or craziest statistic you'll see with this company, as there are cannabis stocks that have performed far worse. The craziest thing about Aurora Cannabis is that, following its pummeling on Monday, Nov. 18, its goodwill of 3.17 billion Canadian dollars ($2.4 billion) is now larger than the company's market cap of $2.38 billion on the New York Stock Exchange.

As a refresher, goodwill represents the "premium" paid above tangible assets that an acquiring company recognizes on its balance sheet when making a purchase. In theory, the purchaser will monetize any acquired patents and continue to develop the infrastructure of businesses acquired in an effort to recoup all of this premium, thereby eliminating goodwill from the balance sheet. But in practice, it doesn't always work this way.

Aurora has made it no secret that acquisitions are a key component of its growth strategy. Since August 2016, Aurora has made more than a dozen acquisitions, with pretty much each and every buyout adding to its recognized goodwill. For instance, the MedReleaf purchase, which totaled CA$2.64 billion, led to CA$2 billion in recognized goodwill out of the company's current CA$3.17 billion. This goodwill currently accounts for 57% of total assets, which is a high-water mark among major pot companies -- and that's not an honor a business wants to have.

Sometimes, the only effective way for a company to remove goodwill from its balance sheet is to admit that it grossly overpaid for an asset and take an impairment charge/writedown. What's truly terrifying in Aurora's case is that the value of its potential writedown (up to $2.4 billion) is larger than the company's current market cap of $2.38 billion. This is a big reason why Aurora Cannabis is no sure thing to rebound.

An up-close view of a flowering cannabis plant in a large commercial indoor farm.

Image source: Getty Images.

Aurora's near-term prospects are dimming

Of course, Aurora Cannabis' poor judgment when pricing acquisitions isn't entirely its fault. The company has had some assistance, with regulatory agency Health Canada and select provinces failing to help the marijuana industry in any meaningful way.

For example, Health Canada entered 2019 with a mammoth pile of cultivation, processing, and sales license applications on its desk for review. Even with midyear changes being made to lessen the number of cultivation license applications to review, the agency is still likely numerous quarters away from making a dent in this backlog. Aphria, for instance, just received a green light to plant at its Aphria Diamond campus after a wait of between 18 to 21 months from its initial cultivation license application.

Then there's Ontario, which is Canada's most populous province with 14.5 million people. To date, only around two dozen physical dispensaries have been opened, which means only one store for every 604,200 people in the province. This, along with a huge gap in per-gram price between legal and black-market weed, has made life very difficult early on for companies like Aurora Cannabis.

To better align with current market conditions, Aurora announced in its first-quarter report that it'd be immediately stopping construction at Aurora Nordic 2 in Denmark (a 1 million-square-foot grow farm) and Aurora Sun in Alberta (a 1.62-million-square-foot cultivation facility) for the time being. Rather than yielding at least 350,000 kilos from these facilities, when at peak operating capacity, only six grow rooms spanning 238,000 square feet at Aurora Sun will come online in the meantime. This certainly saves Aurora cash and immediately reduces expenditures, but it also further exposes the company's already ugly balance sheet that's drowning in goodwill. 

My suggestion is to not be tempted by Aurora's low-single-digit share price with the understanding that it's still carrying a toxic amount of potential future writedowns on its balance sheet.