Aurora Cannabis (ACB -4.18%) and GW Pharmaceuticals (GWPH) are two cannabis companies seemingly going in different directions. It's not just their strategies that are different; so are their financials and their stock performances. Year to date, Aurora has lost more than half of its value and while GW has struggled in recent months, it's flat over the same period.
With cannabis stocks in the spotlight for all the wrong reasons as of late, it's more important than ever for investors to find the right stock to invest in today. Let's take a close look at each of these two stocks to see which one is the better long-term buy today.
Focusing on medical marijuana makes GW relatively safe
GW is a medical marijuana stock, and while that may make some investors discount its growth potential, that shouldn't be counted against the company. After all, GW is the first and only company to have a cannabis-based drug (Epidiolex) approved by the U.S. Food and Drug Administration. GW has also made significant progress in Europe, where the drug recently received approval, allowing the company to sell the drug in more than two dozen countries.
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It's still very early on in the process, but if the drug can win over patients and doctors in Europe, it could be a big hit for GW. Epidiolex only launched in the U.S. in November 2018, and over the past nine months, product sales totaled more than $201 million. Of that total, $188 million came from sales of Epidiolex in the U.S. market. It's been a significant boon for the company, and as the popularity of the drug grows, so too will GW's top line.
What also makes GW stand out from other cannabis stocks, including Aurora, is that it posted a profit over the past nine months with a net income of $15.9 million. However, with a lot of rapid growth still coming the company's way, that's by no means a guarantee that it will be able to stay in the black, as expenses will continue to rise.
Has Aurora become too risky?
Aurora has faced a lot of pressure to become profitable, and concerns about its cash flow are never far away, especially with the company announcing it was halting construction in order to conserve cash. However, even if the company's financials are strong enough to withstand the need for more money to grow the business, the problem could be that the level of competition in the industry is about to intensify.
A key part of the company's growth is going to come from the recreational market. And with the Canadian industry starting to see more supply hit the market, that could put downward pressure on prices and margins, making it even more difficult for Aurora and its peers to turn a profit. Rival HEXO is trying to undercut the black market with its Original Stash product to win over market share, which may only worsen the situation.
Then there's also the impact from vaping-related illnesses and deaths, which may scare off potential cannabis customers. Aurora and other pot stocks in Canada are facing significant headwinds, and the cannabis derivatives market may not go as smoothly as planned. On top of all of Aurora's cash flow issues, the last thing the company needs is problems related to sales growth, which could make the stock an even riskier investment.
Why GW is the better pick today
From a risk standpoint, it's clear that GW is the safer investment. While Aurora is one of the top cannabis stocks in the world, it's facing some serious challenges ahead that make it suitable for investors with a high level of risk tolerance. For all other investors though, GW offers a much stronger path to profitability, and it also faces less competition. After all, being the only company with a cannabis-based drug in the U.S. gives it significant first-mover advantages that will help GW dominate the market. And the longer it can hold this advantage, the better off the stock will be.
Over both the short and the long term, GW is a better overall investment when it comes to the cannabis industry.
