Pot is hot on Robinhood. Of the 100 most popular stocks on the trading platform, five of them are marijuana stocks. That's not particularly surprising considering the growth potential for the global cannabis industry.
What might be surprising, though, is which pot stock is the favorite for Robinhood investors. Aurora Cannabis (ACB -1.15%) currently ranks No. 11 among Robinhood's 100 most popular stocks, beating all of its cannabis rivals. Why Aurora? It's complicated.
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Popular but pitiful
Aurora Cannabis might be popular, but that's about all the company has going for it these days. Just look at the stock's pitiful performance.
So far this year, Aurora's shares have plunged more than 80%. The marijuana stock is a whopping 97% off the high it set in early 2018.
Part of the problem is dilution. Over the last three years, Aurora's outstanding shares count has soared 238%. However, dilution is really just a symptom of Aurora's real problem -- it continues to lose a boatload of money.
There are some straightforward reasons for the Canadian cannabis producer's lack of profitability. Aurora faced and continues to face challenges in the Canadian market that aren't under its control, notably including a limited retail infrastructure and the ongoing COVID-19 pandemic.
However, the company also spent money like it was going out of style. It gobbled up smaller companies left and right. It aggressively ramped up production capacity on a scale that dwarfed most of its rivals. Management also made some boneheaded mistakes along the way, such as failing to secure the necessary permit to market medical cannabis in Germany, a blunder that suspended Aurora's sales in the key European market for a while.
Most likely attractions
Despite all this, Aurora is still more popular among Robinhood investors than any other marijuana stock. We can't know exactly what's inside these investors' minds, but here are some guesses that could explain Aurora's popularity.
First, Aurora has been widely followed in the U.S. for a long time. In 2018, rumors circulated that Coca-Cola was in discussions with the company about teaming up to develop cannabis-infused beverages. That partnership never materialized, but the publicity Aurora received was tremendous.
There could also be psychological factors at work. Confirmation bias causes individuals to look at information only in a way that confirms their existing beliefs. The sunk-cost effect manifests when people stick with an investment that has lost money because they don't want to admit failure. Some Robinhood investors who bought Aurora when the stock was performing well could be reluctant to let go.
It's also likely that some investors simply think Aurora now has no place to go but up. They could look at Aurora's valuation, particularly in comparison to other leaders in the Canadian cannabis market such as Canopy Growth, and see the potential for a big rebound.
Some could eagerly await the prospects of some form of marijuana legalization at the federal level in the U.S. The odds of this happening appear better than ever, with polls showing that Democrats have a decent shot at regaining control of the U.S. Senate.
Follow your mother's advice
All of these are possible reasons why Aurora Cannabis remains so popular among Robinhood investors. Are they good reasons to buy the stock? I wouldn't go that far.
If your mother is like mine, at some point when you were growing up, she said something along the lines of, "Don't do something just because others are doing it." She might have even thrown in a reference to jumping off a cliff. Following your mother's advice is usually wise, and I suspect this particular motherly advice applies to Aurora Cannabis.
It's possible that Aurora could bounce back. The company could make significant progress toward achieving profitability. The U.S. cannabis market might open up to Canadian producers. But is Aurora Cannabis the best place to park your money right now? No. It's not even the best marijuana stock to buy right now, no matter how popular it might be with some investors.
