The hype in the cannabis sector picked up from where the excitement in the most popular cryptocurrency ended. Both the cryptos and cannabis created bandwagon effects. Bitcoin’s glow as an emerging investment opportunity faded. Will the pre-ordained largest cannabis producer suffer the same fate?
Aurora Cannabis Inc. (TSX:ACB)(NYSE:ACB) can be the representative of cannabis in the same breath as Bitcoin is in the cryptocurrency world. That could happen in the event the company’s annual production jumps by 36.84% from 570,000 kilograms to 780,000 kilograms not later than 2022.
The bitcoin craze Bitcoin produced many millionaires, but also caused the insolvency of many newbie investors. Investor interest in Bitcoin and other digital currencies soared to abnormal levels. The rise of bitcoin was utterly fantastic. From US$1,000 in early 2017, the price climbed close to US$20,000 or 1,900% by mid-December.
Value investor and billionaire Warren Buffett warned that bitcoin has “no unique value at all” and is basically a delusion. However, Buffett believes the underlying technology or ‘blockchain technology’ is valuable but cryptocurrency will not be instrumental to its success.
As of this writing, a bitcoin is worth US$5,431.95, or about -73% lower than $20,000. Those who came in late and invested US$1,000 at the peak, the value of their bitcoins are less than US$300. But don’t count out bitcoin yet. Proponents are certain that cryptocurrencies will soon be true-blue investments like stocks.
The cannabis mania Unlike bitcoin and the cryptocurrency market in general, the cannabis sector’s legitimacy is not suspect. Aurora Cannabis is listed on both the New York Stock Exchange and the Toronto Stock Exchange. The shares of the company are traded alongside iconic American and Canadian corporations.
Aurora Cannabis is somehow viewed as a risky investment because of its own doing. However, the stock price will surely not fall by 1,900%. The honeymoon period is over and investors are waiting for Aurora Cannabis to be on the path to profitability.
Not the best choice Aurora Cannabis is an industry giant, but is still finding its way. The company is under scrutiny because it’s doing things inimical to prospective investors and shareholders. Most cannabis players are not without debt. But Aurora Cannabis’ debt obligations are frightening.
Aurora Cannabis is raising funds via the issuance of convertible debt. While the funds would be utilized for expansion, current shareholders will be diluted and share value will drop. Industry peers are not in a precarious state, as they are partnered with institutional investors with the funding muscles.
While the cannabis sector is in a wild and woolly state at present, Aurora Cannabis has a higher degree of risk compared with the rest. The company is too preoccupied with growth that profitability and shareholder value have been relegated to the background.
Similar to bitcoin, Aurora Cannabis is a risky play. Given the current circumstance, it’s not the best choice, not yet. Other weed stocks are doing better in terms of ensuring growth and protecting shareholder value.
Fool contributor Christopher Liew has no position in any of the stocks mentioned.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019