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Avoid pot stocks except for Aurora Cannabis: analyst

Aurora Cannabis

Aurora CannabisLike the rest of the pot sector, Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News TSX:ACB) has been been dropping over the past few months, but there’s something to be said for experience and leadership in the still-emerging space.

That’s according to Rob Wertheimer of Melius Research, who likes Aurora’s chances going forward.

The news from marijuana hasn’t been great as of late, what with the seeming meltdown of CannTrust Holdings along with mounting losses from supposed industry leader Canopy Growth Corp. Overall, the sector saw huge gains over the first stretch of the year but has been in a tailspin since about mid-March. The Horizons Marijuana Life Sciences ETF, for example, which tracks the North American cannabis industry as a whole, has lost 37 per cent of its value since March 19 and now stands just about even for 2019.

The same goes for Edmonton, Alberta’s Aurora, which effectively doubled in value over the first two-and-a-half months of the year, only to lose much of that ground over ensuing months. The stock, which currently trades in the high-$7.00 range hit an all-time high of $16.24 during the heady days leading up to rec pot legalization in Canada last fall.

Aurora Cannabis gets boost from bullish guidance…

 

But Aurora got a temporary boost earlier this month on news that the company’s fourth quarter production numbers would likely be coming in at the top-end of its earlier guidance. Aurora announced a corporate update on August 6 that included expected Q4 production available for sale “at the upper end of the range between 25,000 kg and 30,000 kg, ahead of previous guidance of 25,000 kgs.” The company said that net revenues for the quarter are expected to be between $100 million and $107 million, compared to $19.1 million for the fourth quarter of 2018.

“Our Q4 2019 guidance highlights Aurora’s continued leadership,” said Terry Booth, CEO of Aurora, in a press release. “We set out to be best-in-class cultivators, and through carefully evaluated acquisitions, that vision continues to drive exceptional results today.”

And while he’s standing bearish on the sector in general, Wertheimer, founding partner and director of research at Melius Research, says that Aurora’s execution could be a difference-maker.

“We have a negative rating on the industry. This last few months, it’s been volatile. You’re basically just taking shots trying to get directionally correct, and we’ve tried to go with someone who’s got scale, leadership, ability to grow and a little bit of execution…”

“We have a Buy rating on Aurora,” said Wertheimer to CNBC’s Power Lunch on Wednesday. “We have a negative rating on the industry. This last few months, it’s been volatile. You’re basically just taking shots trying to get directionally correct, and we’ve tried to go with someone who’s got scale, leadership, ability to grow and a little bit of execution. I think it’s time for the companies to start executing.”

Wertheimer says picking the winners is still a difficult endeavour, as there are a number of unknowns, including who will emerge as bona fide players in Europe’s growing cannabis market.

“Canada has taken a lead in being actually legal and so you can expand and grow and the companies are doing an aggressive job with that. The issue is that it’s still uncertain — in Europe, it’s brand new,” says Wertheimer.

“There’s pockets of spots where you can start to sell, and we don’t know who’s going to end up supplying that market in two and three and five years. So, they’re doing the right thing but there’s a lot of uncertainty with this expansion,” he says.

About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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