Since Aurora Cannabis (ACB) reported earnings on May 13th, the stock has been trading higher. The company reported revenues that were 35% higher than their previous quarter.
However, many are concerned that this spike in revenues is temporary. That is because at the start of the global coronavirus pandemic, many consumers rushed out to stock up on cannabis or ordered more than they normally would online. Based on recent studies many retailers saw in some cases a 100% increase in sales. Since the height of the pandemic though, things are starting to cool off.
Another reason shares of ACB have been strong was due to their announcement on May 20th of their acquisition of CBD retailer Reliva. This acquisition was cheered by investors because it means that ACB will expand its retail footprint in the US.
Also, ACB recently announced that it would be selling its entire stake in the Alberta liquor retailer Alcanna for $27.6 million. Many speculate that the company will use the proceeds to pay for its acquisition of Reliva.
But is all of this enough to keep shares of ACB moving higher?
This is a difficult question to answer. Not only is the stock market seeing extreme volatility but so is the marijuana sector.
If ACB has a chance at holding on to their gains, they will need to show continued success in both reducing expenses and growing revenues in next quarter’s earnings report, which is expected to be released some time in August.
We believe that ACB still has some hype and speculation baked into the price. If next quarter doesn’t meet or beat analyst expectations, the stock could see a significant drop from current levels.
However, if a new permanent CEO is announced, that Wall St. finds favorable, we could see shares move higher. In May the company said that they were in the process of hiring a new CEO and would be announcing this “within a few months”.
There are still many uncertainties with ACB which make it such a volatile stock. Owning shares of ACB is high risk but also offers high reward at this time. Investors should be cautious this summer, as we wait for more news to be released from the company.
(Disclosure: The author is long ACB)
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ACB shares were trading at $14.65 per share on Wednesday afternoon, down $0.16 (-1.08%). Year-to-date, ACB has declined -43.48%, versus a -0.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More…