Stone Fox Capital

About the Author Stone Fox Capital

Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: http://ibkram.com/stone-fox-capital Follow Mark on twitter: @stonefoxcapital

Aurora Cannabis (ACB): Chasing the Wrong Global Market


The Canadian cannabis companies led by Aurora Cannabis (ACB) have made a big push into global markets. The companies have used the global push to justify stock valuations that wouldn’t normally be warranted on the highly competitive and limited Canadian market. The recent tender award in Germany just proves how chasing global domination wasn’t a wise move.

Germany Push

The Germany medical cannabis market is one of the first markets to open up outside of the North American markets of Canada and U.S. The German market has a lot of hope for revenue growth, but the Germans have been slow to roll out plans to implement the local cultivation and distribution of the product.

In the December quarter, Aurora Cannabis only generated revenues of C$2.9 million from EU medical cannabis sales. For all of the big push into these global locations, the Canadian company only saw about 6% of total net cannabis sales of C$47.6 from outside of Canada.

On April 4, the German Bundesinstitut für Arzneimittel und Medizinprodukte BfArM (Federal Institute for Drugs and Medical Devices) awarded Aurora Cannabis as one of three winners in the public tender to cultivate and distribute medical cannabis in Germany. The problem here is that the 13 lots in the tender only amounted to 10,000 kg in total annual cultivation.

Aurora Cannabis won 5 of the 13 lots for a meager 4,000 kg questioning if all of the work was worth the effort. Interesting to note that fellow Canadian operator Aphria (APHA) won 5 of the other available tenders. Investors shouldn’t be surprised when German companies enter the market when the tenders become larger in the future.

Global Push

The problem here is that Aurora Cannabis and most of the large Canadian players chased the global market and steered clear of the U.S. cannabis market in order to list on major stock exchanges. The NYSE and Nasdaq don’t allow listings by companies involved in activities that are federally prohibited such as cannabis in the U.S.

The company makes the big claim of having operations in 5 continents and 24 countries. The operations include 14 global production facilities including cultivation facilities in Uruguay and Denmark. All of these operations amount to very little business now.

Source: Aurora Cannabis investor presentation

The issue here is that the U.S. market in 2018 was estimated by Arcview Market Research to account for $11.0 billion out of the $12.9 billion global cannabis market. The U.S. market is set to control over 70% of the global market long into 2022 and beyond questioning the focus on Germany, instead of the U.S.

Takeaway

The key investor takeaway is that Aurora Cannabis appears to just be spinning their wheels outside of North America. The company has mostly missed the U.S. market for an international market that is slowly developing and might never match the size of the U.S. market.

The stock has a market valuation in the $10 billion range using the fully diluted share count of 1.1 billion shares. The valuation probably isn’t warranted based on the reality of the international operations.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.

 

Disclosure: The author has no position in ACB. The information contained herein is for informational purposes only.

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