About two years ago, Aurora Cannabis (NASDAQ:ACB) was considered one of the most promising marijuana companies. The pot grower was only second to Canopy Growth (NASDAQ:CGC) in terms of market cap at the time.

Things have changed quite a bit since 2018. Canopy Growth remains the largest pot company by market cap, but several of Aurora Cannabis's peers have surpassed it in this category, including the likes of Aphria (NASDAQ:APHA) and Cronos Group (NASDAQ:CRON)

As of Oct. 27, Aurora Cannabis's market cap stands at $517 million, which, at first glance, seems a good distance away from micro-cap status (i.e., companies with market caps between $50 million to $200 million). But after sliding by almost 90% in the past 12 months, it's not unreasonable to think that Aurora Cannabis could end up dropping below the micro-cap level within a year. Can the company stage a comeback before that happens? 

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What happened to Aurora Cannabis?

Several factors led up to Aurora Cannabis's struggles over the past year. First, the company pursued an aggressive growth strategy in its early days. The pot grower went on an acquisition spree to extend its footprint in the marijuana market. In a deal that closed in July 2018, the company acquired Canada-based MedReleaf in an all-share transaction valued at CA$3.2 billion. More recently, Aurora Cannabis made a move to enter the U.S. cannabidiol (CBD) market by acquiring Reliva for $40 million worth of its common stock, in a deal that closed in May.

As a result of these (and other) acquisitions, Aurora accumulated a ridiculous amount of goodwill on its balance sheet. Goodwill is the difference between the purchase price of a company that's being acquired and its market value. Write-downs of goodwill can harm a company's bottom line (more on this problem below). 

Second, the market conditions in Canada haven't exactly been ideal. Last year, regulatory authorities were slow to issue retail licenses, which led to barriers for pot growers operating in the country, particularly in Ontario, the largest province by population. Former CEO of Canopy Growth, Mark Zekulin, eloquently explained this issue as follows:

The inability of the Ontario government to license retail stores right off the bat has resulted in half of the expected market in Canada simply not existing. Ontario represents 40% of the country's population yet has one retail cannabis store for 600,000 people. When one year into the market, the addressable market is nearly half what is expected, there is going to be meaningful short-term problems.

Cannabis-infused chocolate and cookies.

Image source: Getty Images.

In part because of this headwind, Aurora Cannabis recorded poor financial results quarter after quarter. But while that was the case for many marijuana companies north of the border, Aurora Cannabis performed worse than many of its top competitors. Investors responded by selling off the company's shares. 

Can Aurora Cannabis turn things around?

Thankfully, Aurora Cannabis has already begun addressing some of these problems. During its recently reported fourth quarter ended June 30, the company decided to write down 1.8 billion Canadian dollars in goodwill and intangible assets. At the end of its fiscal year 2019 (ended June 30, 2019), the cannabis company had CA$3.2 billion in goodwill, and it made up more than half of its total assets. Now, Aurora Cannabis has CA$928.4 million in goodwill, making up about a third of its assets. However, the writedown negatively affected the company's earnings, as expected.

During the fourth quarter, Aurora Cannabis reported a net loss of CA$1.9 billion, compared to a net income of CA$2.3 million it recorded during the prior-year period, and a net loss of CA$136.1 million it reported during its third quarter 2020. 

The fact that Aurora Cannabis is addressing its balance sheet issues is a good thing, but unfortunately, a massive CA$1.8 billion non-cash impairment charge -- which the company attributed to changes to the overall market conditions and restructuring activities -- wasn't the worst part of its fourth quarter results. The company's operations continue to underperform.

The pot grower's cannabis net revenue slipped by roughly 3.1% sequentially to CA$67.5 million. And the company predicts more tough times ahead. For the first quarter of its fiscal year 2021, Aurora Cannabis thinks it will record cannabis net revenue between CA$60 million and CA$64 million. The midpoint of this guidance would represent an 8.1% sequential decrease and a 12.4% year-over-year decrease. According to the company's CEO, Miguel Martin: "Aurora has slipped from its top position in Canadian consumer, a market that continues to support material growth and opportunity." 

It's not looking good

The constant poor financial results, balance sheet problems, and lost ground in its domestic market don't bode well for Aurora Cannabis. And given the issues it continues to face, not to mention its disappointing fiscal first-quarter 2021 guidance, the company is likely to continue performing poorly, which will only send its market cap lower. I expect the company to cross the threshold into micro-cap territory within a year. Even if it doesn't, it probably won't be doing faring well enough over the next 12 months to merit a new investor's attention. Savvy stock pickers will stay a safe distance away from this cannabis company.

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.