The trade conflict between the U.S. and China appears to be easing. Officials from both countries said that they would resume trade talks, which led to a rally in the global stock market in August 2019.
Marijuana stocks have not made a significant jump, however, with the likes of Aurora Cannabis (TSX:ACB)(NYSE:ACB) falling since August 23, 2019. This prevailing weakness is nothing new for Aurora. The ACB stock has underperformed over the last six months.
However, the declining stock prices are an industry-wide issue. All major weed stocks have seen dips in performance. Among investors, the general view regarding marijuana companies has become so cynical that the recent market rally has been unable to help Aurora recover from this slide.
What about the long-term scenario? Similar to the rest of the industry, Aurora Cannabis is likely to see short-term growth issues, but the long-term prospects for the company appear favourable. After suffering from months of no substantial growth in the stock market, there are indications that the company’s stocks can soar in the long run.
The fundamentals remain strong The long-term growth fundamentals for this top weed company are strong. There are primarily two factors that contribute to this: increasing global demand and Aurora Cannabis’ immense production volume.
It may come as no surprise that the legalization of marijuana is likely to increase the consumption of marijuana on a global scale. With the overall perception of cannabis evolving, the market is predicted to become nearly as big as the global tobacco market. At this point, Aurora Cannabis’ stock price is a bargain.
Aurora is the second-largest cannabis company in Canada today, behind Canopy Growth. Aurora does not need to grow in terms of market share; for the time being, the company only has to hold the current position.
If Aurora can defend the current market share, the company will be able to capitalize on the long-term due to the increasing global demand for cannabis. The question is: How will Aurora be able to sustain that position?
Aurora Cannabis’ production volume are the keys to the kingdom Despite the short-term issues Aurora is currently facing, along with other cannabis stocks, defending the market share certainly seems possible. The overall prospects are positive, primarily due to ACB’s tremendous volume growth over the past few months.
The company has invested in 15 production facilities all over the world with active operations in 25 countries, including the Aurora Sky facility in Edmonton, which can produce over 100,000 kilograms per year.
Aurora Cannabis’ custom-built growing facilities are also different from that of its competitor facilities, which are mostly converted greenhouses. ACB’s industry-leading efficiency in growth means lower production costs, thereby allowing the cannabis producer to scale up the production to higher figures.
Apart from the large production volume, Aurora has the most massive global distribution network, thanks to the active operations the company has in several countries.
With the current production capacity of over 625,000 kilograms, Aurora Cannabis is the largest cannabis producer by volume in Canada. In fact, ACB is one of the largest producers of cannabis in the world, and I believe that’s Aurora’s secret to long-term success.
Fool contributor Adam Othman 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