What happened
Shares of Aurora Cannabis (ACB 18.15%) were down as much as 22.1% this week, according to data from S&P Global Market Intelligence. The international cannabis producer saw its shares sink after lawmakers in the United States once again delayed taking a vote on nationwide cannabis reform. As of market close on Friday, Dec. 9, shares of Aurora Cannabis were down 19.3% for the week.
So what
This week, the U.S. House of Representatives voted through the giant annual Department of Defense budget. Leading up to the vote, analysts were hoping to see cannabis reform added as a part of the defense package, but that didn't happen. With time running out for this current Congress, it's looking more and more unlikely that any cannabis legislation will pass and become law. Cannabis investors, who were likely disappointed to see these developments, sold off shares of Aurora Cannabis this week.
What is this cannabis bill, and why is it so important? First off, it is not about the nationwide legalization of cannabis, although that's been proposed many times.
The bill, called the SAFE Banking Act, would cancel federal restrictions on banks and lending institutions providing loans to cannabis companies. These restrictions have made it difficult for cannabis companies like Aurora Cannabis to raise money to fuel growth, forcing them to take out high-interest-rate debt and preferred loans from second-tier lenders. If the SAFE Banking Act is passed, cannabis businesses will be able to operate much more efficiently.
This would help companies like Aurora Cannabis grow their production through lower-cost debt, allowing them to build up supplies for more statewide legalization of marijuana -- and eventual nationwide legalization, which now has bipartisan support. But it looks like the finish line for this bill might be pushed into 2023.
Now what
Shares of Aurora Cannabis are down a whopping 96% over the past three years as investors have become extremely pessimistic about the cannabis industry. The company now has a market cap of just $365 million; that could look quite cheap a few years from now if it's able to become one of the leading global producers of cannabis, with the industry closing in on $30 billion in annual sales volume. However, Aurora Cannabis is highly unprofitable right now, generating a net loss of $52 million on just $49.2 million in revenue last quarter.
Aurora Cannabis stock is down in the gutter. When you consider the size of the cannabis market along with how much money the business is losing right now, the stock looks like a high-risk investment with a lot of potential upside.
