Aurora Cannabis (ACB) is one of the most popular marijuana stocks on the market today, but not everyone is a fan.
Stifel analyst W. Andrew Carter recently lowered his rating on Aurora Cannabis' stock to "sell" from "hold." He also reduced his target price to CA$5 ($3.77) from CA$7 ($5.28).
Carter argues that Aurora's fourth-quarter report indicates that the marijuana company is nowhere close to achieving profitability. Aurora generated a net loss of CA$297.9 million in its most recent quarter. Even its adjusted earnings, before interest, taxes, depreciation, and amortization (EBITDA) -- which excludes share-based compensation and a host of other charges and expenses -- came in negative, at a loss of CA$11.7 million.
Although Carter acknowledged that Canada's impending legalization of cannabis derivatives -- such as edibles, infused beverages, and topicals -- should provide a catalyst for revenue growth, overall recreational marijuana sales are likely to be "more muted" than expected. In turn, Carter slashed his forecast for Aurora's 2020 full-year revenue to CA$485 million from CA$600 million. Carter also now expects Aurora to generate a larger EBITDA loss of CA$89 million, compared with his prior projection of CA$32 million.
Moreover, Carter predicts that Aurora will need to raise "significant" capital before the end of Q1 2020. Unlike rivals Canopy Growth (NYSE: CGC), which received $4 billion in investments from beer giant Constellation Brands (NYSE: STZ) (NYSE: STZ-B), and Cronos Group (NASDAQ: CRON), which received a $1.8 billion investment from tobacco titan Altria (NYSE: MO), Aurora has yet to sell a significant stake in itself to a larger partner. As a result, Aurora has relatively low cash reserves, which Carter believes will make it challenging for it to invest in the potentially massive U.S. marijuana market.