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* AURORA CANNABIS ANNOUNCES PRIVATE OFFERING OF US $250
CONVERTIBLE SENIOR NOTES DUE 2024
* AURORA CANNABIS INC - ALSO INTENDS TO GRANT TO INITIAL
PURCHASERS OF NOTES AN OPTION TO PURCHASE UP TO AN ADDITIONAL
US$37.5 MILLION AMOUNT OF NOTES
* AURORA CANNABIS - EXPECTS TO USE NET PROCEEDS TO SUPPORT
CANADIAN AND INTERNATIONAL EXPANSION INITIATIVES, OTHERS
Marijuana millionaire has a ring to it. But how likely is that Aurora Cannabis could be the ringbearer?
Keith Speights (TMFFishBiz)
Jan 27, 2019 at 2:00PM
]Let's cut to the chase. Yes, Aurora Cannabis (NYSE:ACB) could be a millionaire-maker stock. Given a large enough initial investment and enough time, many stocks -- including Aurora -- could generate returns of $1 million or more.
The real question, though, is whether an investor buying a reasonable stake in Aurora Cannabis has a realistic chance of becoming a millionaire from this initial investment over a period of time that's not ridiculously long. For example, could a $10,000 initial investment in Aurora turn into $1 million within 25 years?
Few stocks can achieve such a feat. To pull it off would require a compound annual growth rate (CAGR) of a little over 20%. Could Aurora Cannabis deliver this level of growth?
What it would take
To become a millionaire-maker stock, Aurora Cannabis would need to grow its market cap from around $6 billion today to $600 billion. The marijuana producer would probably have to generate annual revenue in the ballpark of $125 billion to justify that kind of market cap.
Is it possible that Aurora Cannabis could make $125 billion annually in the future? Assuming the company continues to focus on the cannabis industry, the answer depends on just how big the global marijuana market will be.
Aurora itself says that the total global cannabis opportunity is around 200 billion in Canadian dollars, or roughly $150 billion. That's in line with what other marijuana executives state publicly as well.
However, the figure only includes medical and recreational use of marijuana. There are several other markets that could be disrupted by cannabis producers, including alcoholic beverages, tobacco, and pharmaceuticals. Canopy Growth CEO Bruce Linton thinks all of these potential markets that could be disrupted total $500 billion in annual sales.
Let's assume that Linton is right. If so, Aurora Cannabis would need to capture around 25% of the total global opportunity. That isn't a totally outlandish proposition. Aurora claimed a market share of around 30% in Ontario soon after the Canadian recreational marijuana market opened. Ontario is Canada's largest province and is a very competitive market.
Why it's not likely
You might have noticed a lot of "ifs" in what it would take for Aurora to be a millionaire-maker stock. Let's add another one: If any of those assumptions fall through, Aurora won't make anyone a millionaire.
First of all, the $150 billion global marijuana figure that gets thrown around assumes that recreational cannabis will be legalized in the U.S. and throughout Europe. No European country has legalized recreational marijuana at this point. And while 10 U.S. states have legalized recreational pot, it remains illegal at the federal level. Maybe all of that could change in 25 years. However, there's certainly no guarantee that it will.
An even higher hurdle to jump is achieving such a disruption in other markets that it would amount to $500 billion in total annual sales. Aurora Cannabis points to the potential in disrupting other markets, but the company wisely doesn't attempt to project the dollar value of the opportunity.
It's also highly doubtful that Aurora Cannabis would attain a 25% global market share. Consider in Constellation Brands' decision to make a major investment in Canopy Growth, the big alcoholic beverage maker estimated that Canopy could realistically capture no more than 15% of the global market outside of Canada. I don't see Aurora topping Canopy Growth by a significant margin.
Remember also that increasing market cap doesn't always translate to solid returns for investors. Last year, for example, Aurora's market cap soared nearly 60%. Was it a great year for Aurora shareholders? Nope. The stock plunged 35% because the company's repeated bought deal financing transactions issued so many new shares that they diluted the value of existing shares.
No need to swing for the fences
Don't count on Aurora Cannabis making you a millionaire. It's just not very likely to happen.
But the global marijuana market is big. Aurora's production capacity and international distribution channels should enable the company to be a major player in the market for a long time to come. Like in baseball, you don't have to swing for the fences to be a winner in investing. While Aurora Cannabis might not give you a home run, it could at least provide a single or double.
To continue the baseball metaphor, though, it's also smart to choose carefully which pitches you take a swing at. I think there are even better marijuana stocks to swing at than Aurora Cannabis. They probably won't make you a marijuana millionaire, either. But they could make you richer than you are now.
And make no mistake – it is coming.
Cannabis legalization is sweeping over North America – 10 states plus Washington, D.C., have all legalized recreational marijuana over the last few years, and full legalization came to Canada in October 2018.
Eventually, I believe we'll see an increase in allowable insurance coverage in many countries that legalize medical cannabis. For that reason, I not only believe Aurora Cannabis will benefit greatly, but the overall potential size of the global cannabis market in general is probably vastly underrated.
Considering Aurora's high quality science team and strong potential for developing intellectual property in its medical marijuana products, the company will not only have the ability to generate massive revenue streams on its own in the future, but possibly license it out to others.
I see the patient numbers of Aurora Cannabis continuing to climb for a long time to come, and once it develops and brands its medical solutions, and governments give the go ahead for a growing number of products to be covered by insurance, this is going to be a long-term growth catalyst for Aurora.
What's important to understand is even if it takes some time for this scenario to play out, medical marijuana patients are going to continue to grow for many years, and in the interim, there will be many people continuing to spend money for cannabis treatments. That, and recreational sales, will underwrite growth until the prescription market that is covered by insurance grows to a level it has a major impact on the performance of Aurora.
When analyzing Aurora Cannabis, this needs to taken into account for the long haul, as it's certainly going to be the major revenue and earnings stream of the company in the years ahead.
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10 STOCKS SET FOR MONSTER GROWTH IN 2019
Aurora Cannabis (ACB)
Aurora Cannabis (NYSE:ACB) has suffered a disjointed long-term performance in the markets, even compared to other marijuana stocks. In 2017, ACB stock shot from near-obscurity to the toast of Wall Street. This year, ACB has shown flashes of brilliance, but little to show for it overall.
I expect the cannabis sector to wake from its slumber. When it does, the currently embattled ACB has the potential to become one of the best stocks to buy for 2019. The markets really haven’t responded positively to Aurora’s buyout of Farmacias Magistrales. Farmacias made news when it became the first, and so far only Mexican importer of raw materials that contain the psychoactive component THC.
The buyout allows Aurora a viable channel to Latin America’s medical-marijuana market. In addition to Farmacias, ACB has operations in Colombia and Uruguay. Should the industry establish medical breakthroughs in Latin America, advocates will pressure the U.S. to further loosen federal cannabis restrictions.