If you thought the stock market has been taken on a wild ride over the past two months, then take a closer look at how marijuana stocks have fared since the beginning of April 2019. Following the first quarter of 2019, which saw numerous pot stocks rocket into the stratosphere, the past 13 months have erased anywhere from 50% to 95% of cannabis stock valuations.

Mind you, the long-term outlook for the legal weed industry is promising. Tens of billions of dollars in sales are conducted in the black market each year, meaning there's a very real opportunity to move these illicit users to legal channels over time. But in the short run, U.S. pot stocks have been crushed by high tax rates, while Canadian cannabis companies have run into supply bottlenecks and shortages, depending on the province.

An up-close view of flowering cannabis plant.

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Aurora Cannabis has dashed investors' "high" expectations

Perhaps no pot stock has stood out more for all the wrong reasons than Aurora Cannabis (NYSE:ACB). Aurora Cannabis has been the most-held stock on millennial-focused investing app Robinhood for months, yet is down close to 92% since mid-March 2019. For new investors getting their first taste of what buy-and-hold investing is like, Aurora has set a poor example.

At one time, this was a company that looked to be on track to lead Canada is peak annual output, and it was a projected leader in international expansion. The company's 15 production sites, if fully built out and operational, were expected to generate north of 660,000 kilos per year, with Aurora having a production, export, or research presence in 24 additional countries, beyond Canada. In short, it was expected to be a low-cost production giant that countries would line up to sign wholesale supply agreements with.

Aurora Cannabis was also expected to land a brand-name partner and/or equity investor following the hiring of billionaire activist investor Nelson Peltz as a strategic advisor. Peltz's background leans heavily toward consumer-packaged goods companies in the food and beverage industries, which would make him the perfect liaison to forge a partnership or equity investment between a brand-name business and Aurora Cannabis.

Unfortunately, none of these pie-in-the-sky expectations has even come close to hitting the mark. In fact, every couple of weeks it seems Aurora Cannabis gives investors another reason to sell and not look back. This week I've got a brand-new reason... or should I say almost 21.2 million of them... why Aurora is a terrible stock.

A businessman in a suit pressing the sell button on a digital screen.

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Another 21.2 million reasons you should avoid Aurora Cannabis like the plague

Over the trailing five-month period, Aurora Cannabis' share price has lost 71% of its value and consistently fallen below $1 on the New York Stock Exchange (NYSE). Aurora is enacting a 1-for-12 reverse split in the coming weeks to regain compliance with the NYSE to avoid delisting. All the while, Aurora's press releases have suggested that, while the near-term remains challenging, the company remains on track to execute over the long run.

But you know what's missing over those past five months? Management putting their money where their mouth is and aligning their interests with that of their shareholders. With the exception of former CEO Terry Booth acquiring 73,500 shares between $2.06 and $2.09 in early January, there hasn't been any insider buying at Aurora Cannabis.

On the other side of the coin, there's been abundant selling. Following Booth's departure as CEO, he sold nearly 12.2 million shares of his holdings in mid-March, ranging between an average price of $0.66 and $0.91 per share. A little over a week later, Aurora's President Steve Dobler wound up selling 8 million shares of stock between $0.70 and $0.72. Also, back in mid-December, independent director Jason Dyck sold nearly 1.1 million shares of Aurora stock at $2.35. Altogether, that's around 21.2 million shares of Aurora stock sold by company insiders and 73,500 shares acquired as Aurora's share price shrunk another 71%.  

Although there are a number of reasons insiders might choose to sell stock, including to cover their income-tax liability, such overwhelming selling in the face of unprecedented share price weakness doesn't exactly inspire hope in management's message that the company remains on track.

A person holding a magnifying glass over a company's balance sheet.

Image source: Getty Images.

Aurora Cannabis' balance sheet is a house or horrors

If this isn't enough to scare you away from investing in Aurora Cannabis, just take a deeper dive into the company's balance sheet and I'm sure you'll be convinced. From top to bottom, it's a house of horrors.

First off, we see a company that's lacking enough capital to meet its upcoming obligations. When filing its management discussion and analysis in mid-February for the fiscal second quarter ended Dec. 31, 2019, it was estimated that liabilities over the coming 12 months would total almost $374 million Canadian. But as of a recent press release, Aurora Cannabis had just CA$205 million in cash and cash equivalents on its balance sheet.

In order to raise additional cash, the company's only recourse has been to issue common stock. Having recently completed a $400 million (that's in U.S.) at-the-market (ATM) stock offering, the company announced plans to initiate a $350 million ATM offering moving forward. Or, to summarize, Aurora has ballooned its share count from 16 million to 1.31 billion in less than six years, and its management team now has the go-ahead to continue diluting existing shareholders by issuing up to 479 million more shares of stock (based on a close of $0.73).

This is also a company that's weighed down immensely by goodwill -- i.e., premium paid for acquisitions above and beyond tangible assets. Even after writing down CA$762.2 million in goodwill in the fiscal second quarter, Aurora Cannabis is still lugging around CA$2.41 billion in goodwill on its balance sheet. That's practically double its current market cap, and it represents 52% of total assets. With the company having virtually no shot to recoup this premium in the future, I view another large writedown as highly likely.

To sum things up, there aren't any good reasons for investors to gamble on Aurora Cannabis.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.