Over the past year, Aurora Cannabis (TSX:ACB) stock has taken a backseat to many other Canadian marijuana producers that have skyrocketed to new highs, while Aurora investors fled the scene to pursue other compelling opportunities in the space. The weakness was mainly due to the shareholder-dilutive actions conducted by management when it decided to go on an acquisition spree at around the same time the marijuana market had hit a peak.
I slammed Aurora’s management team for its aggressive roll-up strategy and urged investors to short Aurora while going long Canopy Growth this spring. The trade paid off immediately after Constellation Brands (NYSE:STZ) announced its second helping of Canopy Growth stock, as Aurora shares continued to retreat.
With “talks” of joint ventures with beverage companies in the air, Aurora stock is picking up traction once again. It’s important to note, however, that the discussions going on behind the scenes are just that. No dotted line has been signed yet, and until it is, Aurora shares are at risk of surrendering the substantial gains that have been realized over the last few weeks.
Right now, speculation over potential partnerships is driving up cannabis stocks large and small. Many investors are wondering who’s going to get the next Constellation-like deal in the bag. This speculative theme is where the puck is now, but as an investor, you need to figure out where the puck is going next, so you can better position yourself for a big goal!
I believe the puck is heading in Aurora’s direction next. The real opportunity to be had with Aurora lies within the CBD cannabis sub-market that’s been overlooked by most investors and speculators who may have gotten high off their holdings.
When investors speak of cannabis, getting high is usually what comes to mind first. The cannabinoid that gets you high is THC. But while the average investor is looking for commoditized pot producers that get users high, Aurora has doubled down on a market that probably won’t get much media attention until the THC high has a chance to wear off.
CBD offers many of the same therapeutic properties (for easing inflammation, anxiety, etc.) as THC, but lacks the psychoactive effects that cause one to become stoned. Thus, CBD is a more practical therapeutic compound that can be used regularly in the lives of consumers who desire to remain productive as they treat their ailments with CBD oil or CBD-dominant strains of cannabis
The high-inducing THC is primarily found within cannabis buds (or flower), and while there’s still CBD in bud, hemp has a much higher concentration of CBD relative to THC. So, it’s not all about the bud; hemp has a very compelling future as well. The CBD market is expected to grow to US$2.1 billion by 2020 according to an estimation from the Hemp Business Journal.
Of all players in the CBD market, Aurora is a standout player with its Hempco Food and Fiber acquisition, which appears to have fallen under the radar after Aurora chased down CanniMed Therapeutics.
Foolish takeaway
As more attention is drawn on the medicinal applications of CBD, Aurora could realistically pop like a coiled spring. Many generic pharmaceutical firms and consumer packaged-goods companies are going to want a piece of the CBD market, so I think it’s just a matter of time before CBD becomes the next “hot topic” in the cannabis industry.
Unless you’re keen on obtaining a front-row seat to the CBD market, I’d wait for a meaningful dip before backing up the truck on Aurora shares. The stock is overhyped after the Coca-Cola (NYSE:KO) talks and could be due for a pullback if a deal isn’t made official in the coming weeks.
Stay hungry. Stay Foolish.
Fool contributor Joey Frenette has no position in any of the stocks mentioned.