Aurora Cannabis (TSX:ACB)(NYSE:ACB) may be one of the top stocks in the industry, but that doesn’t mean that it’s the best investment that cannabis investors can make today. Although the company has been showing strong sales growth in recent quarters, it has also incurred losses of around $400 million over just the past two quarters. Now more than ever, cannabis investors are paying close attention to not just sales numbers but profits as well.
Pot stocks have been struggling lately, and although Aurora is up year to date, since February the stock has been down. In the past few months, we’ve seen a lot of bearish activity surrounding the industry. Cannabis investors are demanding more substance from companies before investing their hard-earned dollars in them, especially given the recent CannTrust scandal underlining just how much risk there is in the industry.
That’s where a company like OrganiGram Holdings (TSXV:OGI)(NASDAQ:OGI) could have a lot of value with investors. Unlike many of its peers, its financials have been very strong. The company is coming off a record quarter where its sales hit $25 million, showing terrific growth of more than 600% from the prior year. And had it not been for the company incurring fair-value losses of $12.5 million, it could have easily ended up with a profit as its net loss for the quarter was $10.2 million.
What’s encouraging is the company’s ability to control costs. Despite the significant increase in sales, expenses didn’t outpace revenue growth and left a lot of room for incremental revenue to flow through to the company’s bottom line. That’s what investors should come to expect from well-managed companies, that more sales should lead to a stronger bottom line, not the opposite. Unfortunately, that’s what we’ve come to expect with many marijuana companies, as excessive spending has often sent their financials deep into the red. And that’s likely a key reason why Bruce Linton was let go from his position at Canopy Growth, because the company’s financials had gone from bad to worse.
Another positive for OrganiGram is that it hasn’t been burning through a lot of cash, and when it has been doing so, it’s been to help fund its inventory. Over the past nine months, the company has spent more than $49 million on inventory. Without such a hefty expenditure, the company’s cash flow from operations would have been positive during that time. And without excessive cash burn, a company’s need to raise capital lessens, resulting in less debt and equity issues.
Cannabis investors are on high alert knowing that the industry is definitely a lot more fragile today than it was a month ago. However, there are often signs of a good company versus a bad one, and being able to control costs is certainly one of them. That’s what makes OrganiGram an appealing option for investors today. With strong numbers and the potential for the company to produce a positive net income in future quarters, it could find itself in demand, as investors look for safer investments in the cannabis industry.
Marijuana was legalized across Canada on October 17th, and a little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.
Besides making key partnerships with Facebook and Amazon, they’ve just made a game-changing deal with the Ontario government.
One grassroots Canadian company has already begun introducing this technology to the market – which is why legendary Canadian investor Iain Butler thinks they have a leg up on Amazon in this once-in-a-generation tech race.
This is the company we think you should strongly consider having in your portfolio if you want to position yourself wisely for the coming marijuana boom.
- Leading Brokers Name 3 TSX Shares to Sell Friday
- These Canadian Cannabis Stocks Are Tumbling Today, But Should You Buy?
- Ranking the Top 3 Cannabis Companies Today
- 3 Things to Watch on the TSX Index on Thursday
- Should You Buy Shares of This Top Cannabis Stock After Earnings?
Fool contributor David Jagielski has no position in any of the stocks mentioned.
Source: The Fool
Forget Aurora Cannabis (TSX:ACB): This Could Be a Much Safer Pot Stock to Invest in