Few industries have grown as rapidly in recent years as marijuana. Between 2014 and 2018, worldwide legal weed sales more than tripled to $10.9 billion. Meanwhile, Wall Street is forecasting that global annual pot sales could hit $50 billion, at minimum, by 2030. Even with the recent growing pains the North American pot industry has contended with, this represents a healthy rate of expansion.
Although there are no shortage of marijuana stocks for investors to choose from, there's no denying that Canadian pot stocks have been among the most prominent and popular. In particular, Aurora Cannabis (NYSE:ACB) and Canopy Growth (NYSE:CGC) have continually stood out from their peers as being the preferred way to play the green rush.
Long-term investors in Canopy and Aurora have done exceptionally well
What you might be surprised to learn, though, is that despite being clobbered in 2019, long-term investors in both companies are still doing quite well. How well, you ask? Let's just imagine, for the sake of argument, that you were prescient enough to invest $10,000 into each of these companies exactly four years ago, as of Feb. 19 (so, Feb. 19, 2016). Here's how much that $10,000 investment would be worth now:
- Aurora Cannabis: $38,430
- Canopy Growth: $107,990
That's right -- even with Canopy Growth shedding more than half of its market cap since reaching its 2019 closing high in April, and Aurora Cannabis losing more than 85% of its share price since mid-March 2019, long-term investors would still be rolling in the green.
Let's not forget that these two companies are expected to be cannabis production leaders in Canada, and that they rank as the top-two Canadian growers in terms of international reach, with Aurora Cannabis having a presence in 24 countries outside of Canada, and Canopy Growth able to reach 16 countries beyond its domestic market.
But at the same time, more recent investors have not fared as well. Aurora Cannabis' shareholders who've purchased into the company on a trailing three-year basis are almost certainly underwater. The same can be said for Canopy Growth's investors who've bought into the company since the beginning of 2018.
The question is, what does the future hold for these two highly popular pot stocks?
Canopy Growth's new CEO has his work cut out for him
Despite being an absolute train wreck in 2019, there's genuine hope from Wall Street that Canopy Growth's new CEO, David Klein, is going to be able to right the ship.
You see, Klein comes over having spent some time as Chief Financial Officer of Corona and Modelo beer maker Constellation Brands. As you might be aware, Constellation Brands owns a 37% stake in Canopy Growth, and also has notable representation on its board of directors. This representation played a key role in the firing of cannabis visionary co-CEO Bruce Linton in July, and is why Mark Zekulin was required to step down in December.
Klein, who carries with him quite a bit of consumer-packaged goods knowledge, has his work cut out for him. He's being tasked with tightening the belt at a company that's spent frivolously for years. In fact, share-based compensation at Canopy Growth wound up surpassing net sales in the company's fiscal second-quarter results. The good news is that Canopy's fiscal third quarter showed a clear reduction in share-based expensing and general and administrative costs.
On the other hand, Klein's lack of cannabis experience is a concern. There's little doubt that he'll be capable of cutting costs, but will he understand how best to grow Canopy with a significantly reduced budget? That's a question that remains to be answered.
Right now, Canopy Growth's $2.27 billion Canadian in cash, cash equivalents, and marketable securities is tops in the Canadian pot industry, and it'll likely help provide a downside buffer to the company's share price. Nevertheless, real bottom-line progress will be needed in fiscal 2021 if newer investors in Canopy Growth are to see green of their own.
Aurora Cannabis is a dumpster fire that should be avoided
Whereas Canopy Growth's latest earnings report offered hope, Aurora Cannabis looks to have trampled any hope of a quick rebound following its fiscal second-quarter operating results.
As recently as mid-2019, Aurora Cannabis was expecting 625,000 kilos of run-rate production by the end of fiscal 2020 (June 30, 2020). As noted, it was also expected to be a major player in international markets (especially Europe).
But less than a year later, Aurora is backpedaling at an alarming pace. In order to conserve capital, Aurora Cannabis has halted construction on two of its largest grow farms (Aurora Nordic 2 and Aurora Sun), and has put a third greenhouse (Exeter) up for sale. With just six grow rooms operational at Aurora Sun, the company is probably looking at an annual run rate of 150,000 kilos by the end of June.
As for overseas markets, they've been an early stage bust. Most international markets that have legalized medical marijuana are still in the process of forming their regulations on use and imports. All the while, Aurora's overseas investments are yielding virtually no return for the company.
Things have gotten so bad that Aurora Cannabis recently made a number of amendments to its secured credit line, including reducing its access to available capital by CA$141.5 million. Right now, issuing stock and further diluting shareholders looks to be the only reasonable way Aurora Cannabis can raise cash.
In short, any investment gains with Aurora, be they short- or long-term in nature, could prove fleeting.