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.
Read more on ACB:
- Analyst Reiterates Buy on Aurora Stock Following Public-Tender Win in Germany
- Aurora Cannabis Aims to Reach Over 500,000 Kgs of Cannabis by 2020
- Did Aurora Cannabis (ACB) Stock Just Get Riskier?
- Aurora Cannabis (ACB) Stock Ready to Rumble
- Analyst Commends Cannabis Stock Aurora for Peltz Pick
More recent articles from Smarter Analyst:
- Canopy (CGC): Seaport Cuts Estimates, Reiterates Neutral on the Cannabis Stock
- Is Intel (INTC) a Buy Following 'Data-Centric' Event? This Analyst Says No
- Tesla (TSLA): Another Bull Bites the Dust
- This Cannabis Stock Takes Another Step on the Road to Becoming the Next Blockbuster