It wasn't all that long ago that pot producer Aurora Cannabis (ACB -2.96%) was a leading company in the cannabis industry. Its sales growth was strong and the company was expanding its operations. Nowadays, the company's CEO is working to simplify operations and shut down facilities in order to keep costs down and get Aurora closer to profitability.

Aurora's business hasn't evolved the way many in the industry would have expected or hoped. Predicting where it will go from here could also be a challenge given the industry's ongoing changes. But here's where I could see the company going from here on out -- and based on that, I'll also assess whether it would make for a good investment right now.

The landscape in the U.S. could change everything

Right now, the big unknown is what will happen in the U.S. market. It doesn't affect Aurora today, but federal legalization is the most significant event that could take place in the industry within the next five years, so it requires consideration.

It has been more than four years since Canada legalized marijuana for recreational use, and cannabis companies are arguably doing worse, not better. An influx of competition has made it difficult for one brand to truly dominate, especially given the restrictions on advertising and marketing (it's virtually non-existent). So a U.S. market opening up could be welcome news to Canadian cannabis companies desperate for a new growth avenue.

Aurora hasn't shown much interest in the U.S., but in 2020 it did acquire Reliva, which makes hemp-derived cannabidiol products in the U.S. At $40 million, it wasn't a huge transaction, but it could help Aurora expand into the U.S. if and when the market opens up. I believe Aurora is being conservative right now because it is focusing on profitability and it also doesn't have the deep pockets rival Canopy Growth has, thanks to billions of dollars that beer maker Constellation Brands invested in the company back in 2018.

When the opportunity arises, and assuming legalization does happen, I predict Aurora will likely jump at the chance to expand into the U.S. It would be a huge mistake not to, particularly for a company that's struggling to generate growth right now. 

Why an acquisition could be inevitable

The big challenge for Aurora is that it simply may not have the resources at its disposal to make a big move into a market and be the strong growth company it once was. In its first-quarter results of fiscal 2023 (period ended Sept. 30), Aurora's net sales were less than 50 million Canadian dollars, and declined 18% year over year.

While it narrowed its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss to CA$8.7 million, the company also used up CA$31.1 million in Q1 to fund its day-to-day operating activities, which was an increase from an outflow of CA$22.7 million a year earlier. The business isn't going to run out of money anytime soon (Aurora has CA$369.3 million in cash and cash equivalents on its books), but it also doesn't have a stockpile of money to be able to make a big move.

As a result of poor financials and the need to raise cash through offerings over the years, Aurora's stock has taken a pounding. This year alone it has cratered 70%, sending its market cap down to just under $500 million. It's not a tailspin that I can see the company getting out of anytime soon, even if it achieves adjusted EBITDA profitability.

But with the company's more modest valuation and improving bottom line, it could be a business that a larger company, whether it's in cannabis or another industry, decides to buy and pump money into. On its own, too much would have to go right over the next five years for Aurora for its business to be strong enough to be able to expand and be a good growth investment again. And rather than continuing to struggle, I would expect management to seek out a sale of the company at some point in the future.

Should you buy Aurora Cannabis' stock today?

Although Aurora is getting closer to adjusted EBITDA profitability, its net loss was still CA$51.9 million in Q1. And with a gross profit before fair value adjustments of less than CA$2 million, I'm not sure Aurora will ever truly be profitable (without the help of fair value adjustments, which can be incredibly volatile) with any consistency.

The company's path is uncertain, and whether legalization takes place or not in the U.S., more consolidation looks inevitable in the Canadian pot market. And Aurora could be an attractive asset for a bigger business to acquire for the sake of increasing market share. But in the meantime, the stock could continue to fall further down in price, and I wouldn't suggest that investors go along for the ride.