Aurora Cannabis Inc. (TSXV:ACB) is a high-flying Canadian medical marijuana producer that is slowly creeping up on Canopy Growth Corp. (TSX:WEED) and Aphria Inc. (TSXV:APH). The company has a $787 million market cap, but it could soon break the $1 billion mark later this year.
Aurora is constructing a 800,000 square foot greenhouse at the Edmonton International Airport called Aurora Sky. The demand for marijuana is skyrocketing, so this massive project could steal a huge chunk of business away from its competitors over the long term. There’s no question that Aurora is gaining a huge amount of positive momentum and we could see the company as the next TSX graduate over the next few months.
Could Aurora be the next big thing in the marijuana industry? Or could the management team’s lack of experience cause the company to get smoked by its competition?
Ambitious plans could send the stock flying
The Aurora Sky facility is set to increase capacity by 10 times, and if the project is a success, the company could be a huge disruptor in the marijuana space. Canopy has been the go-to marijuana stock in the Canadian market, but this could easily change once Aurora’s Sky project is up and running. The massive greenhouse would have the capacity to produce over 100,000 kilograms of dried marijuana per year.
The Aurora Sky initiative is definitely one of the more promising growth prospects in the marijuana scene today. The management team is extremely ambitious and believes its greenhouse will be the most advanced marijuana production facility in the world. Can the management team actually deliver given that it is has little to no experience in the marijuana industry?
The company claims to be an “ultra-low-cost producer” with the fastest client-book growth, but it’s way too early in the game to be making such claims at every conference call. When the Aurora Sky project is complete, it is expected that the cost per gram will drop significantly, and when combined with the massive capacity increase, the initiative could be enough to propel Aurora over Canopy and Aphria.
Risks and takeaway
Sure, the Aurora Sky project could send the stock into the atmosphere, but the management team’s lack of experience could be a huge risk to the Aurora Sky project. The huge growth potential is already baked in to the stock and could correct if Aurora Sky is anything short of a complete success.
The risks are extremely high with this name, but so are the rewards. The demand for marijuana is ridiculously high at current levels and expected to skyrocket once the drug is legalized across the country.
But personally, I’m on the sidelines because I’m not so sure the management team has the expertise needed to finish Aurora Sky without a number of roadblocks. I’m also not comfortable with the stomach-churning amount of volatility that can be expected over the next year.
If you’re think the relatively junior management team can pull it off, and you’ve got a stomach of steel, then Aurora could be a great speculative buy that could pay off huge over the next few years.
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Fool contributor Joey Frenette has no position in any stocks mentioned.