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1 Marijuana Stock I'd Avoid at All Costs

By Eric Volkman - Feb 1, 2021 at 2:00PM

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This company spent lavishly on assets, and isn't getting much return on that spend.

Despite its popularity with marijuana stock investors, this relatively high-profile pot company has a strategy that hasn't worked and isn't likely to in the future.

Which stock is it? Longtime Fool contributor Eric Volkman reveals this anti-pick in a conversation with Healthcare and Cannabis Bureau Chief Corinne Cardina in this clip from Motley Fool Live recorded on Dec. 22.

 

 

Corinne Cardina: What is one pot stock you think investors should probably avoid in 2021?

Eric Volkman: I'm not liking Aurora Cannabis (ACB -38.46%). I don't see a lot of improvement there. That was another company that was really pretty reckless in terms of acquisitions and overpaying, and now it's costing them in terms of the usual [asset] impairments and all that. They are deeply unprofitable.

I think particularly in the wake of the Aphria (APHA) and Tilray (TLRY) merger, that whole going for big scale thing, I don't know if it's such a business model that has a lot of legs. Aurora was always clearly going for it.

Aurora's strategy was two-fold. They wanted to build out their production assets to reach economies of scale to where their production would, at least, pay for itself or be profitable. That hasn't happened because every other company is trying to build up, or has been trying to build up their assets, and you have lots of smaller producers too. So I don't see that situation improving, and they still have a lot of growth assets that they're going to need to reconcile or deal with somehow.

Another thing is they were big, and remain big, on international expansion. That's great, that's a wonderful idea and at some point down the road, maybe with this U.N. thing spurring developments, maybe international markets could get big and liberalize, and sell recreational and sell medical.

But for right now the reality is marijuana, really on a global scale, is a non sell. You have full legalization basically in two countries in the world, Canada and Uruguay. Canada is pretty well covered, Uruguay I don't know how much of a market is there.

There are bright spots here and there. We mentioned previously Aprhia, which is active in Germany. Germany has a fairly decent medical market, good demographics, an older population that tends to have money, lots of support from socialized medicine there. But it's not enough to pin a big part of your strategy on, which is what Aurora is doing, they really want to be an international player.

And I don't think that's going to shake out for years at best. Aurora has put a lot of time and energy and resources into that. I don't see that coming, so the two big pillars of their strategy, I think they're very shaky. I don't like Aurora at all. I think they have done some things pretty well, but it's a stock to avoid for me going into [2021].

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Stocks Mentioned

Aurora Cannabis Stock Quote
Aurora Cannabis
ACB
$1.68 (-38.46%) $-1.05
Tilray Stock Quote
Tilray
TLRY
Aphria Stock Quote
Aphria
APHA

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