Marijuana stocks have gone through a massive roller-coaster ride over the past couple of years. Go back to 2018, and it seemed that even the tiniest companies with ties to cannabis were soaring, even if their business models were unproven. Now, there's just as much pessimism as there was optimism back then, and even well-established leaders in the cannabis industry have felt the pain.

Aurora Cannabis (ACB -4.42%) has been one of the best-known marijuana stocks for a while, and it saw its fair share of success in recent years. As the bloom has come off the cannabis craze, however, Aurora has proven vulnerable to the industry's challenges. Earlier this week, Aurora's stock price sank below the $1 per share mark, making it a penny stock and bringing with it all the baggage that penny-stock status carries. With shares looking so cheap, though, some value-oriented marijuana investors have to wonder whether now might be the perfect time to bet on a big rebound for Aurora.

Hand holding a marijuana leaf, with cannabis plants in the background.

Image source: Getty Images.

The challenges that Aurora Cannabis faces

Unfortunately, there are a number of issues that Aurora Cannabis will have to address if it wants to mount a successful turnaround. Among them are the following:

  • Massive losses. Aurora posted a loss of 1.33 billion Canadian dollars in its fiscal second quarter, which ended Dec. 31. Much of that loss came from impairment charges against its assets, but even when you take those factors out, operating losses of almost CA$120 million showed that Aurora is still far from consistent profitability.
  • Significant debt. Aurora had more than CA$300 million in liabilities on its balance sheet related to current and long-term convertible debentures, and another CA$300 million tied to loans and other borrowing. With just CA$156 million in cash and equivalents, Aurora will continue to have challenges related to cash flow and maintaining its debt obligations.
  • Potential future dilution. Aurora already has a bad reputation for relying too much on secondary stock offerings to raise capital. If the company needs more cash and has to turn to the equity market for more financing, then selling more stock at current levels could make it a lot harder for current shareholders to regain their losses.
  • A possible NYSE delisting. In order to keep trading on the New York Stock Exchange, Aurora needs to avoid having its stock fall below the $1 per share level for a 30-day period. Aurora could always seek to do a reverse stock split to boost its share price and avoid delisting, but the stigma of reverse splits would be another black mark against the cannabis company.

Add to this factors like heavy competition in the marijuana industry, difficulties in growing the retail market to its full potential, and the uncertainty of legalization efforts in many major markets, and it's easy to see why Aurora has fallen so far.

What Aurora has to do to succeed

If Aurora Cannabis wants to prove bullish shareholders right, it'll need to reverse a lot of the difficulties it's seen recently. That includes doing the following:

  • Restarting many of the core projects that it temporarily halted recently, including construction at its Alberta Aurora Sun complex.
  • Finding ways to jump start its expansion plans in international markets.
  • Hiring a strong replacement for retiring CEO Terry Booth.
  • Containing costs while still leaving room for internal investment in key initiatives.
  • Coming up with a long-term strategy for entering the U.S. market more aggressively.

That's a tall order for the cannabis company to achieve right now. Given the market's focus on the Covid-19 outbreak, it'll be tough for Aurora to get the attention it would need to make a more positive impression with the financial community.

At this point, Aurora Cannabis has a tough road ahead of it. If it can get its house in order, then it might not be doomed to penny-stock status. If not, though, it'll probably take a reverse split to get the marijuana stock's price back above the $1 per share mark.