Aurora Cannabis (NASDAQ:ACB) is one of the most popular cannabis stocks in the stock market. But it shouldn't be, according to GLJ Research analyst Gordon Johnson.
Johnson believes the Canadian marijuana producer's share price will eventually plunge to $0. Essentially, he thinks Aurora will go bust and shareholders will lose all of the money they invested in its stock.
In turn, Johnson recommends that investors sell their Aurora Cannabis shares now. He even goes as far as to recommend using the stock's recent rally following the U.S. elections earlier this month to initiate a short position. Short selling is a way to potentially profit when a stock declines in value.
Johnson is critical of Aurora's operational strategy, which has seen management alternate between a focus on premium cannabis blends and value-priced products. Neither strategy has proven successful. Through it all, Aurora has posted massive losses. It generated a $2.5 billion net loss in fiscal 2020 alone, after writing down a host of misguided investments.
With Aurora continuing to burn through alarming amounts of cash, it will likely need to dilute shareholders with public offerings to raise capital, as it did just days ago with its $172.5 million stock sale. Yet unless Aurora can reach profitability soon, investors may grow tired of throwing good money at a company that has lost more than 85% of its value over the past three years.
So, although the future of the cannabis industry remains bright, Aurora may not be able to capitalize on the opportunity. And if it doesn't right its ship soon, its stock price could decline toward Johnson's $0 target.