Short sellers have had a field day with cannabis stocks in 2019 and 2020 after the massive bull market in 2018…
Down 90% from its 2018 highs, Aurora Cannabis Inc. (NYSE: ACB) has been one of the hardest hit companies in the sector.
But don’t get sucked into a “value trap” with this company.
Earlier this year, Aurora shares traded as low as 60 cents from a combination of a low cash balance, a persistently high cash burn rate, and a difficult outlook for raising new capital.
The situation was so dire that the firm had to implement a reverse stock split to maintain its public listing. It also announced a $250 million equity facility that could dilute shareholders by 30%.
Long-term, I do believe it’s only a matter of time before cannabis is federally legal nationwide. And cannabis stocks will certainly be worth more than they are today as a result.
But that time is not now. And it’s probably not even on the horizon for the next five years…
Don’t get me wrong, it’s wonderful to see cannabis stores operating as essential businesses during this pandemic while still being labeled a “Schedule 1” drug by the Federal government.
But at the same time, our country is dealing much more important problems at the moment. And legalizing cannabis may fall behind due to other higher-priority legislation.
20 years from now many cannabis stocks will be worth much more than they are today. But with all the money Aurora Cannabis is burning and only losses to show for it, this business could no longer exist in three to five years…