In­vestors push Aurora Cannabis shares to new highs

The Globe and Mail (BC Edition) - - OPINION - BRENDA BOUW

Aurora Cannabis Inc. is the lat­est mar­i­juana stock to whip up in­vestor frenzy, climb­ing nearly 60 per cent in the past three trad­ing days and more than dou­bling since the start of the month amid spec­u­la­tion about its po­si­tion in the pul­lu­lat­ing cannabis sec­tor.

An­a­lysts say the sup­plier of med­i­cal mar­i­juana has one of the fastest-grow­ing pa­tient counts in the Cana­dian in­dus­try, is well poised to grow pro­duc­tion and sales at home and abroad, is di­ver­si­fy­ing through in­vest­ments in cannabis ex­tracts and is rais­ing money for ex­pan­sion. The big­ger-pic­ture ben­e­fit is that Aurora could be the next mar­i­juana pro­ducer to score a ma­jor deal with a large in­vestor in the al­co­hol, to­bacco or phar­ma­ceu­ti­cal sec­tor, fol­low­ing in the foot­steps of in­dus­try leader Canopy Growth Corp.

An­a­lysts say com­pa­nies in th­ese in­dus­tries are look­ing to grab a share of the grow­ing cannabis mar­ket ahead of le­gal­iza­tion for recre­ational use in Canada, which is set for July, 2018.

Aurora is one of the big­gest play­ers be­hind Canopy and “peo­ple are think­ing it may be the start of an in­vest­ment trend where other multi­na­tion­als will start tak­ing a look to po­si­tion them­selves,” says Mackie Re­search Cap­i­tal an­a­lyst Greg McLeish.

It has been a vo­latile few days for Aurora, which is now the sec­ond­largest pot stock by mar­ket cap­i­tal­iza­tion. The stock hit a new high of $6.90 early on Tues­day, an in­crease of about 230 per cent from a year ago. Shares were briefly halted in mid-morn­ing trad­ing on Tues­day (mar­ket reg­u­la­tors say a stock is halted when there’s a “sig­nif­i­cant and un­ex­plained short-term price move­ment”), then fell 12 per cent from Mon­day’s close to $5.26 be­fore re­bound­ing and fin­ish­ing the day up more than 7 per cent to $6.41.

An Aurora ex­ec­u­tive can­celled an in­ter­view that The Globe and Mail sched­uled with chief ex­ec­u­tive of­fi­cer Terry Booth for mid-Tues­day af­ter­noon, cit­ing in an e-mail “some key time-sen­si­tive is­sues that must take prece­dence.”

Aurora’s stock, which grad­u­ated to the TSX in July, has blown past an­a­lyst price tar­gets, which cur­rently range from $4.45 to $5. All four an­a­lysts that cover the com­pany have a buy rec­om­men­da­tion, with some point­ing to Aurora’s di­ver­si­fy­ing busi­ness model and sta­tus as one of the mar­ket lead­ers.

Aurora has li­censed fa­cil­i­ties in Al­berta and Que­bec and is mak­ing in­vest­ments in an ex­tract-tech­nol­ogy com­pany Ra­di­ent Tech­nolo­gies Inc. and hemp seed foods com­pany Hem­pco Food and Fiber Inc. Ear­lier this year, Aurora bought a nearly 20-per-cent stake in Cann Group Ltd., Aus­tralia’s first med­i­cal cannabis li­censed pro­ducer and ac­quired Pedan­ios, Germany’s largest med­i­cal cannabis dis­trib­u­tor. The com­pany has said it’s “ac­tively pur­su­ing fur­ther in­ter­na­tional op­por­tu­ni­ties.”

“I do be­lieve that in­ter­na­tional op­por­tu­ni­ties are key to their growth and that they are well po­si­tioned in this mar­ket,” Mr. McLeish says.

In­vestors also ap­pear bullish on the com­pany’s po­ten­tial to make ac­qui­si­tions in a sec­tor ex­pected to see more con­sol­i­da­tion, as well as its prospects for po­ten­tially lur­ing a ma­jor in­vestor. Last month, U.S. al­co­hol gi­ant Con­stel­la­tion Brands Inc. bought a nearly 10-per-cent stake in Canopy for $245-mil­lion. The agree­ment was con­sid­ered the first of its kind in the cannabis sec­tor, with more ex­pected.

“There has been a lot of spec­u­la­tion about who will also have a sim­i­lar in­vest­ment come in,” says PI Fi­nan­cial an­a­lyst Jason Zand­berg. “Aurora is one of those names that make sense, but they’re not the only name.”

Aurora’s stock is likely surg­ing on a hand­ful of fac­tors, in­clud­ing ris­ing rev­enue and pa­tient counts, says Bruce Camp­bell, a port­fo­lio man­ager at StoneCas­tle In­vest­ment Man­age­ment.

In its lat­est earn­ings re­port, Aurora said it had 19,280 ac­tive reg­is­tered pa­tients at the end of the first quar­ter ended Sept. 30, up from 8,200 for the same quar­ter last year. Aurora re­ported firstquar­ter rev­enue of $8.3-mil­lion, which beat ex­pec­ta­tions and was up from $3.1-mil­lion a year ear­lier. Net in­come was a penny per share as com­pared to a loss of 3 cents for the same quar­ter in the prior year.

Mr. Camp­bell owns a hand­ful of mar­i­juana stocks, but not Aurora. While he has “warmed up” to the com­pany, given its re­cent in­vest­ment ac­tiv­i­ties, he doesn’t plan to buy the stock at this level.

“At this point in time we wouldn’t step into Aurora, but with all of the pieces they’ve put in place, if it pulls back, it would cer­tainly be one that we would give more thought to,” he says. Aurora Cannabis (ACB) Close: $6.41, up 44¢

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