In the last five years, Aurora Cannabis (TSX:ACB) has experienced significant underperformance compared to other marijuana stocks. Currently valued at $283 million by market cap, Aurora Cannabis shares have plummeted by 99% from their all-time highs, resulting in substantial losses for investors.
Leading up to the legalization of recreational marijuana in Canada in 2018, investor optimism was high, causing steep valuations for Canadian cannabis producers like Aurora Cannabis. These companies, including Aurora Cannabis, invested heavily in expanding their manufacturing capabilities and acquiring smaller competitors at premium prices to gain market share.
However, the heavily regulated cannabis market in Canada has resulted in a slow rollout of retail stores in major provinces, leading to oversupply issues and intense competition from illegal sales. This oversupply, along with challenges in gaining market traction, has caused Aurora Cannabis and other Canadian cannabis companies to face high inventory levels, significant write-downs, and substantial losses.
Despite these challenges, Aurora Cannabis reported revenue of $63.4 million in the fiscal first quarter of 2024, representing a 30% year-over-year increase. The company also reported an adjusted EBITDA of $3.4 million, a notable improvement from the previous year. Aurora Cannabis has been focusing on improving profit margins by increasing sales of medical marijuana products and aims to achieve positive free cash flow by the end of fiscal 2024.
While the U.S. cannabis market presents significant opportunities, with the potential for federal legalization, Aurora Cannabis may face stiff competition from established U.S. cannabis companies with profitable operations and strong balance sheets.
Analysts project Aurora Cannabis to report revenue of $272 million in fiscal 2024 and $314 million in fiscal 2025, with a narrowing adjusted loss per share during this period. Despite the potential undervaluation of ACB stock, it remains a high-risk investment that needs to demonstrate consistent profitability and revenue growth to regain investor confidence.
