Aurora Cannabis (NYSE:ACB) arguably gets more attention than any other marijuana stock. Only Canopy Growth is in the same league in terms of production capacity and market share in the Canadian adult-use recreational marijuana market. Aurora ranks at the top of the important German medical cannabis market.
But if you're looking for pure-play marijuana stocks with great near-term growth prospects, say goodbye to Aurora Cannabis. Instead, say hello to two cannabis companies that on nearly every measure look much more promising -- Cresco Labs (OTC:CRLBF) and Green Thumb Industries (OTC:GTBIF).
Crunching the current numbers
It's not even a close contest when you look at the latest quarterly results for Aurora, Cresco, and Green Thumb Industries (GTI). Let's start with revenue. Aurora's fiscal 2020 Q1 results were abysmal, with the company posting revenue of $75.2 million in Canadian currency (around US$57 million), down 24% from the previous quarter. Cresco's Q3 revenue jumped 21% quarter over quarter to US$36.2 million, while GTI's Q3 revenue soared 52% quarter over quarter to $68 million.
The story gets even worse (or better, depending on your perspective) when we look at the companies' bottom lines. Don't be fooled by Aurora's profit on paper in Q1 of CA$10.7 million. This number was positive only because of an unrealized gain of CA$143.8 million related to 2024 convertible senior notes -- and that gain resulted from Aurora's share price tanking.
Aurora reported an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of CA$39.7 million in its fiscal 2020 first quarter. Meanwhile, Cresco chalked up a net loss of US$8.6 million with a positive adjusted EBITDA of US$11.1 million. GTI recorded a net loss of US$17.1 million with an adjusted operating EBITDA of US$14.1 million.
Cresco and GTI are enjoying strong revenue growth and are generating positive EBITDA. Aurora isn't. Note also that Cresco's revenue is likely to soon receive a big boost with the company's pending acquisition of Origin House, which recently announced record quarterly revenue of CA$22.8 million, up 7% from the previous quarter. Cresco is also acquiring Tryke, which will give it a presence in Arizona and Nevada.
Comparing the market opportunities
You might be thinking, "But Aurora's results should improve a lot as more retail stores open in Canada and the country's Cannabis 2.0 cannabis derivatives market picks up momentum." I totally agree. However, I would argue that the near-term market opportunities for Cresco and GTI look even better.
Both Cresco and GTI are based in Illinois. The state's legal recreational marijuana market opens in January 2020. Illinois' population is roughly one-third the size of Canada's. Another large U.S. state, Michigan, with a population more than one-fourth the size of Canada's, opens its recreational marijuana market even sooner.
Those are just two new markets. Both Cresco and GTI have an addressable market of at least 151 million people -- four times greater than Canada's population and over 25% bigger than the combined populations of Canada and Germany.
And the U.S. cannabis market continues to expand. Nine states could vote on legalizing either medical or recreational marijuana in 2020. These include three big states -- Arizona, Florida, and New Jersey -- that could have measures on the ballot to legalize recreational pot.
Could Aurora enter the U.S. marijuana market in the future? Yes, but there's no way to know when that day will come. Although the recent action by the U.S. House of Representatives Judiciary Committee in passing a bill to legalize marijuana at the federal level in the U.S. generated excitement, the reality is that the measure isn't likely to even come to a vote in the U.S. Senate.
There's no question that Cresco and GTI are in a better position and have greater growth prospects than Aurora does right now. And both U.S.-based companies have significantly lower market caps than Aurora does. If that's not enough to convince you these two stocks are more attractive picks than Aurora is, consider one other item.
Aurora figured out a way to escape having to raise CA$230 million to pay off convertible debentures that mature in March 2020. But it still has another CA$460 million worth of convertible debentures due in 2024. There's a lot more dilution on the way for the company.
Cresco and GTI might have to take the dilution solution in the future by issuing new shares to raise cash. However, both companies have a much easier path to profitability than Aurora does and shouldn't have to dilute the value of existing shares nearly as much as Aurora will.
Again, I'm not saying at all that Aurora can't or won't be a big winner in the global cannabis market down the road. For investors looking for growth sooner rather than later, though, my view is to say hello to Cresco Labs and Green Thumb Industries and say goodbye to Aurora Cannabis.