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Why Aurora Cannabis, Aphria, and Charlotte's Web Stocks Are Wilting Wednesday

By Rich Smith – Oct 28, 2020 at 2:08PM

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A negative note on one marijuana stock causes two others to fall.

What happened

The stock market's meltdown continued Wednesday morning, with the S&P 500 falling close to 3%. And marijuana stocks such as Aurora Cannabis (ACB -6.20%), Aphria (APHA), and Charlotte's Web (CWBHF -4.92%) got hit hard along with the rest of the market, falling 5% and more early.

That's the bad news. The good news is that as the morning wore on, cannabis shares appeared to be recovering somewhat. As of midday trading, Aphria shares shed 3.5%, and Charlotte's Web was down 5% -- but Aurora Cannabis shares recovered to only a 2.6% loss, which is actually a somewhat smaller-than-average loss relative to the market as a whole.

Wilted marijuana plants

Image source: Getty Images.

So what

This is surprising because, of the three marijuana stocks named, Aurora Cannabis is actually the only one that has specific bad news attached to it today.

Yesterday, as you'll recall, Aurora Cannabis shares tanked after the company revealed that it has been burning through cash faster than anticipated -- and will need to raise a further $500 million over the next 25 months. One analyst downgraded the stock in response to the revelation, and this morning, a second analyst, investment bank Stifel Nicolaus, has decided to cut its target price on Aurora shares -- by 66%, to just 3.60 Canadian dollars, or about $2.70.

Now what

Specifically, Stifel warns that there "will be no investor interest or enthusiasm" in Aurora Cannabis stock for the foreseeable future, reports today. Because in addition to announcing some pretty significant stock dilution, the stock is likely to fall short on sales estimates in fiscal Q1 (Stifel projects CA$54 million, down from CA$62 million previously) and report a CA$13 million EBITDA loss to boot.

In short, the fundamentals of Aurora stock are looking increasingly lousy, and Stifel can't recommend buying the shares until they improve. Of course, you could say the same thing about Aphria and Charlotte's Web as well -- they're not currently profitable, either.

And in fact, with all three stocks down today on just one marijuana stock's bad news, it appears that investors are saying the same things about them all.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Charlotte's Web. The Motley Fool has a disclosure policy.

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