Aurora Cannabis (ACB -1.80%) probably grew accustomed to being No. 2. Except for a fleeting moment in 2018 when it surpassed Canopy Growth (CGC 0.31%) in market cap, Aurora has played second fiddle to its main rival most of the time. But after its stock took a shellacking last year, Aurora is no longer the second largest Canadian cannabis producer based on market cap. That honor now belongs to Cronos Group.

There's still plenty of negativity surrounding Aurora Cannabis. Believe it or not, though, Wall Street analysts are more bullish about Aurora than they are about Canopy Growth. Here's why.

Wall Street sign with U.S. flags in front of the New York Stock Exchange in background

Image source: Getty Images.

What Wall Street thinks

Perhaps the best way to gauge what Wall Street analysts think about a stock is to look at their one-year price targets. Even when an analyst downgrades a stock, his or her price target can still reflect an underlying bullish outlook. 

In the past month, two analysts have downgraded Aurora stock from recommending holding the stock to recommending selling or underweighting the stock. Despite the increased pessimism, though, the average one-year price target for Aurora right now represents a premium of close to 79% above the current share price. Nine analysts view the stock as a buy, six think Aurora is a hold, one has an underweight rating, and three recommend selling the stock.

Contrast that with the picture for Canopy Growth. Over the past month, one analyst that formerly viewed Canopy as a hold upgraded the stock to overweight. Out of the 23 analysts covering the stock, only one recommends selling it. Nine analysts view Canopy as a buy, one has an overweight rating on the stock, and 12 see it as a hold.

But if you think that Wall Street is more favorable toward Canopy than Aurora, think again. The average one-year price target is 4% lower than Canopy's current share price.

The case for Aurora over Canopy

This difference in how analysts see the near-term prospects for Aurora and Canopy is surprising. Although neither company is on a clear path to profitability, Canopy Growth has a huge cash stockpile and a big partner, Constellation Brands, with deep pockets. Aurora could be at risk of violating its debt covenants and will almost certainly have to raise more cash in the not-too-distant future, leading to more dilution in the value of existing shares.

On top of this, Canopy now has a new CEO, former Constellation Brands CFO David Klein, who is expected to bring much-needed fiscal discipline to the company. Aurora's longtime CEO Terry Booth is still at the helm after the unexpected departure of former Chief Corporate Officer Cam Battley.

Why in the world would Wall Street analysts think that Aurora is going to deliver greater returns than Canopy Growth? I think the main reason is that the stock has been beaten down so much that analysts see it as having more room to run if the company has good news.

Both Aurora and Canopy should have positive catalysts in 2020. The Cannabis 2.0 cannabis derivatives market will almost certainly pick up momentum throughout the year. Ontario plans to issue more retail cannabis licenses, a move that will alleviate a huge concern for Canadian cannabis producers. With Aurora's share price at its lowest level since late 2017, it's not unrealistic to think that the stock could enjoy a big rebound.

There also are several wild cards for Aurora that aren't in play anymore for Canopy. Aurora could name a new CEO that investors really like. It could also pick up a major partner. Cantor Fitzgerald analyst Pablo Zuanic suspects that both could happen and cause Aurora's share price to double over the next 12 months.

Is Wall Street right?

I think that Wall Street could be right that Aurora Cannabis will generate bigger gains than Canopy Growth will over the next year. However, the opposite scenario could easily happen as well.

Regardless of what unfolds this year, my view is that Canopy Growth remains the better long-term choice between these two marijuana stocks. While Aurora might land a big partner and might get a new CEO with a track record of success, Canopy Growth has already checked off both of those boxes.

In addition, Canopy's cash advantage has enabled it to enter the U.S. hemp CBD market in a significant way. If the U.S. Congress votes to change federal laws to allow CBD food supplement, bypassing the slow-moving FDA, Canopy could be a big winner while Aurora is left on the sidelines.

While Aurora could regain its No. 2 position, I suspect that's as high as it will go. Canopy Growth deserves its spot at the top of the cannabis industry, at least for now.