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Marijuana vs US: Will Aurora Cannabis survive in the banned market?

In the US, marijuana has been slowly turning to be legal in certain states but it still remained banned at the federal level. Aurora Cannabis Inc. (NYSE: ACB) has been trying various things in expanding into the US marijuana market as its peers Canopy Growth Corp (NYSE: CGC) and Tilray Inc. (NASDAQ: TLRY) have already established their position in a different way.

Investors tend to take a scoop out from the ever-booming marijuana market. Aurora Cannabis remained the most favorite stock in the pot stocks followed by Canopy Growth and Tilray. There has been a huge demand for quality cannabis and Canada-based marijuana growers have been hurt by the sub-par quality and slower rollout of retail sales. A slower retail rollout has hurt the large-scale growers like Aurora and Canopy while mid-size producers like Tilray, Cronos Group (NASDAQ: CRON) and Hexo Corp expect additional supply in the second half of 2019.

(Image Courtesy: Rick Proctor/Unsplash)

Canopy has been building on hemp-based cannabidiol (CBD) as hemp was legal in the US after the passage of the 2018 farm bill in December. Meanwhile, Tilray purchased Manitoba Harvest that has hemp food products in around 13,000 US stores. The key points for Aurora Cannabis to survive in the banned market includes indirect venture, uncertainty in hemp, and progress in partnership.

Indirect venture – Aurora has indirectly ventured into the US after the spun off of Australis Capital as a separate entity. Australis focused on investing in cannabis-related businesses in the US. However, Aurora Cannabis and Australis Capital must operate independently for avoiding issues related to Aurora’s stock listing due to the close alignment of both the companies.

Hemp uncertainty – Aurora has immense opportunity to utilize on the hemp market but the company hesitated in entering the market after the 2018 farm bill became law in the US, legalizing hemp in the process. Meanwhile, Canopy and Tilray have jumped in headfirst and it turned beneficial for them. It is expected that the hemp market could be beneficial for Aurora Cannabis as it would ultimately be larger than the adult-use recreational marijuana market.

Progress in partnerships – The company remained confidential with regard to leaking out strategy and hiring of Nelson Peltz as a strategic advisor could awaken its progress in the partnerships. Peltz has been assisting the company through potential engagement with mature players in consumer and other market segments, particularly based in the US. A partner in the US could fulfill Aurora Cannabis’ vision of entering the US hemp market easily.

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Legal marijuana is worth an expected $50 billion for the US and is predicted to skyrocket to $80 billion by 2030. Aurora Cannabis has been involved in the partnerships talks with several firms and the announcement could be on the way before this year-end. Investors have been waiting for the company to establish itself in the country and is expecting the stock to be a steady gainer in the long-term.

For the second quarter, Aurora Cannabis slipped to a loss from a profit last year, due to higher costs and expenses. Revenue soared 363% helped by a jump in medical cannabis revenue. Aurora increased the total number of kilograms of cannabis produced by 550% to 7,822 kilograms and the total number of kilograms of cannabis sold rose by 502% year-over-year to 6,999 kilograms.

The company reiterated its previous forecast based on the current confirmed production results. Aurora had expected to have about 25,000 kilograms available for sale in the fourth quarter. Also, the company reiterated its previous estimates of achieving sustained EBITDA positive results from the second calendar quarter of this year to fiscal Q4.

Shares of Aurora Cannabis opened lower on Tuesday and is trading in the red territory. The stock has risen over 38% in the past year and over 73% in the past three months.

 

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