Warning: Steer Clear of Aurora Cannabis Inc. (TSX:ACB) Stock

Two big news items this week have caught the attention of cannabis investors.

The first is that Aurora Cannabis Inc. (TSX:ACB)(NYSE:ACB) and Aphria Inc. (TSX:APHA)(NYSE:APHA) have been awarded contracts by the German government to cultivate and distribute medical marijuana throughout the country.

This is clearly a big win, as it validates both cannabis companies and the quality of their medical operations as well as their international expansion plans.

The next news item comes from a cannabis research firm and its decision to lower its estimate for the Canadian cannabis market.

The estimate now stands at $5.2 billion by 2024, down from the initial estimate of $5.9 billion by 2022. The reasons for this lie in the distribution challenges in Canada and a very active illicit market, which is selling at much lower price points.

Obviously, it is still a booming business, but this just speaks to the whole issue of expectations that are baked into cannabis stocks and whether they are too high, which I believe they are.

With a very heavy and active news flow out of the cannabis industry and out of the different cannabis companies, it can get a little dizzying to wrap our heads around it and form our thesis.

With all this in mind, I would like to now focus on Aurora Cannabis stock, a cannabis stock that I would steer clear of for one primary reason, shareholder dilution.

Shareholder dilution is a big deal.

It’s a big deal that may not get enough attention when things are “good,” but as soon as markets become more risk-averse again, companies that engage in this practice will get hit hard.

While we know that companies that are in growth industries need capital to finance their growth, there are limits to what current shareholders are willing to accept, and to how much they are willing to see their interest in the company diluted away.

Aurora Cannabis shares outstanding have more than doubled in the last year, effectively eating away at existing shareholders’ holdings, and it doesn’t look like this will be stopping anytime soon.

The company recently filed a prospectus to enable it to raise up to $750 million through common shares, debt securities, subscription receipts, units, warrants, or any combination thereof during the 25 month period that the prospectus is effective.

This, combined with the mounting losses as selling, general and administrative expenses rise and research and development costs rise, as well as increased capital investment into Aurora’s growth plans, make me nervous about Aurora Cannabis stock and its future path.

You might be missing out on one of the biggest opportunities in Canadian investing history…

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.

Learn More About This TSX Stock Now

More reading

Fool contributor Karen Thomas has no position in any of the stocks mentioned.

Source: The Fool
Warning: Steer Clear of Aurora Cannabis Inc. (TSX:ACB) Stock
The Fool

The Motley Fool
Contributor for investorsnews.ca
The Motley Fool is dedicated to helping the world invest — better. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, mutual funds, and premium investing services.

In all we do, we take a different approach.

We believe – and have proven over decades – that the individual investor can beat the market.

We believe that anyone can do it, even if they don’t have a lot of time or money to devote to investing.

We believe in a long-term outlook, helping people build wealth over time.

We believe that the person best positioned to take care of your financial future is you.

And we work tirelessly on behalf of our hundreds of thousands of members who are enjoying the opportunities that come with having enough money to do the things that matter to them.

While we are headquartered in Alexandria, Va., The Motley Fool advocates for the individual investor around the globe with offices in the UK, Australia, Canada, Singapore, and Germany.

Related posts