Last year was expected to be when marijuana stocks finally proved to Wall Street that they deserved their lofty valuations. Unfortunately for investors, this wasn't the case.

Instead of pushing toward profitability, pot stocks wound up losing a lot of money, and it ultimately cost investors a lot of their green, too. Between supply issues in Canada, high tax rates in select U.S. states, and a persistent black market presence that made life difficult for legal producers, it was simply a bad year to be a cannabis investor.

But with pot stocks having fallen so far from their 2019 highs, it has investors wondering if they're now a bargain. This is especially true of Aurora Cannabis (NYSE:ACB), the most popular marijuana stock on the planet, and the most-held stock on online investing app Robinhood.

But is Aurora Cannabis a buy after shedding almost 80% of its value since hitting its yearly high in mid-March? As you're about to see, these declines appear to be very much deserved.

Silver dice that say buy and sell being rolled atop a digital screen containing price and volume data.

Image source: Getty Images.

Aurora Cannabis looks like it's holding a winning hand...

On one hand, an argument could very well be made that Aurora Cannabis is a bargain. If all 15 of its cultivation facilities were running at peak capacity, it would be the clear worldwide leader in production, with close to 700,000 kilos of marijuana per year. Being able to produce so much weed should make Aurora a popular company for provinces and foreign countries to forge supply deals with. Further, its large grow farms will be able to use economies of scale to push per-gram production costs well below the industry average.

Aurora also has an international presence that's unmatched. Not including Canada, it has an export, production, research, or partnership presence in 24 countries. Not only are these markets dealing with higher margin medical marijuana, but they'll probably come in handy if dried flower becomes oversupplied and commoditized in Canada.

Don't overlook the fact that Aurora also wound up hiring billionaire activist investor Nelson Peltz as a strategic advisor in March. Aurora has made no secret that it would like to land a partnership with a food or beverage company, which just so happens to be Peltz's area of expertise as an activist investor. Although a deal hasn't yet materialized, Peltz is the perfect person to help bridge an eventual deal.

Top-tier production, a broad-based international presence, and the possibility of a brand-name deal in 2020. Sounds great, right? Well, hold your horses.

An up-close view of a flowering cannabis plant.

Image source: Getty Images.

...but it's really nothing more than a bluff

Despite what looks like a winning hand of intangibles, Aurora Cannabis is actually a fundamental disaster that investors would be wise to avoid.

To begin with, Aurora (and the entire industry, for that matter) is contending with supply issues in Canada that won't disappear overnight. Dried cannabis flower supply has been constrained in a number of provinces since day one of dried flower legalization on Oct. 17, 2018. The biggest problem, arguably, is that Canada's most populated province, Ontario, had only 24 dispensaries open by the one-year anniversary of adult-use sales commencing. Even with Ontario getting rid of its lottery system for retail licenses in 2020, it's going to be some time before product can efficiently reach consumers.

This leads to the next point: Aurora is still losing quite a bit of money on an operating basis. Because of International Financial Reporting Standards (IFRS accounting), there are a number of one-time benefits and costs that tend to confuse investors and complicate pot stock earnings reports. What you really need to know is that once these one-time costs and benefits, including fair-value adjustments, are removed from the equation, Aurora Cannabis is still losing quite a bit of money on an operating basis. That's unlikely to change in 2020.

Aurora's balance sheet is also of serious concern. Despite having access to $400 million in at-the-market offerings (i.e., a fancy of way of saying the company could sell up to $400 million worth its common stock) and a $360 million Canadian credit line from Bank of Montreal, the company's cash position is worrisome considering the breadth of projects still ongoing. What's more, $3.17 billion Canadian in goodwill has been recognized following more than a dozen acquisitions. That's 57% of Aurora's total assets, and it's likely a massive writedown waiting to happen.

A dried cannabis bud and small vial of cannabinoid-rich liquid next to a Canadian flag.

Image source: Getty Images.

What needs to happen for Aurora Cannabis to be worth buying?

Although Aurora Cannabis shouldn't be anywhere near your portfolio in 2020, it doesn't mean the company isn't worth keeping a close eye on. If a few things go Aurora's way, it could actually become an attractive company.

First, we'd need to see serious progress in Canada in correcting its supply problems. Ontario should be able to open around 20 dispensaries per month throughout most of 2020 thanks to a more traditional licensing approval process, and will likely end the year north of 250. This still isn't nearly enough retail locations to satisfy the number of potential recreational consumers in the province, but it'd be a good start. But if Ontario winds up opening dispensaries at a faster-than-expected pace, then it's possible Aurora and its peers could see their financials considerably improve.

Aurora would also have to land a brand-name partner and, preferably, an equity investment to go along with that partnership. Chances are that Aurora wouldn't see the same scale of investment as Canopy Growth received from Constellation Brands, or Cronos Group netted from Altria Group, where $4 billion and $1.8 billion were respectively invested. However, it's pretty clear that there are cash concerns surrounding Aurora, and an equity injection would help to restore investor faith in the company.

While Aurora is bound to remain a popular pot stock in 2020, it's best left on the sidelines.