Why Aurora Cannabis (TSX:ACB) May Be Ready to Pull the Breaks on its Aggressive Growth Strategy

Aurora Cannabis Inc. (TSX:ACB) has been an aggressive player in an explosive industry. What’s in store for this cannabis giant?

| More on:

It was just a matter of time before Aurora Cannabis (TSX:ACB) caught up with the rest of the smoking-hot cannabis players. Aurora stock has trailed the industry over the past year, courtesy of management’s sub-par M&A moves, but it has since bounced back on reports that “talks” have been going on behind the scenes with a beverage maker that Warren Buffett likes very much.

As we head to and past legalization day, what’s in the cards for Aurora? And will management continue down the path of aggressive growth?

Dilution no more?

At this juncture, I think it’s safe to say that investors across the globe made the jump onto the TSX to scoop up shares of Aurora while they were depressed. It was essentially the only “cheap” and established player in the space, and after spinning off its U.S. and real estate operations into a publicly traded entity of its own (Australis Capital on the Canadian Securities Exchange), I think the highly dilutive days of Aurora may finally be in the rear-view mirror.

Aurora shareholders had felt the dilutive impact when Aurora decided to pull the trigger on acquisitions that were far too rich. Shareholders don’t like the value of their shares to diminish, and that’s a major reason why Aurora lost a step to its peers this year.

For management, I think the message was loud and clear. Dilutive acquisitions are no longer acceptable, unless the desired result is a sinking stock. While the broader industry is nowhere near consolidated, one has to think that Aurora will be busy its newfound businesses, rather than scooping up anything it can get its hands on with apparent neglect for the price being paid.

Time for Aurora to take a breather

Fellow Fool contributor David Jagielski noted that Aurora may be spreading itself too thin and that its aggressive strategy may ultimately be what ends up sinking the company.

“Getting overrun with costs and trying to do too many things at once is an easy way to run into cash constraints and other challenges,” said Jagielski.

While Aurora’s number one competitor Canopy may also be going global while keeping an eye open for up-and-coming talents in the pot pool, I believe Aurora has been much sloppier than Canopy when it comes to execution. Thus, it’s not a mystery as to why Canopy has been a more attractive name to marijuana investors.

Foolish takeaway

Whether Aurora takes a breather remains to be seen, but at this rate, I simply don’t see the company staying on its aggressive path. I’ve compared Aurora’s strategy to that of Valeant in the past. Unlike Valeant, however, I believe Aurora will shelve its aggression before it’s too late.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Investing

money cash dividends
Dividend Stocks

Passive Income: How Much to Invest to Get $800 Per Month

If you need high current income, you can explore these dividend stock ideas. In the long run, you can expect…

Read more »

question marks written reminders tickets
Bank Stocks

What’s Next for Royal Bank of Canada Stock?

Royal Bank of Canada stock fell 7%, as bank stocks felt the tremors of the U.S. banking crisis.

Read more »

consider the options
Bank Stocks

Canadian Investors: Should You Be Worried About Scotiabank Stock?

The U.S. banking crisis created a selloff in global bank stocks. Should you be worried about Scotiabank stock or buy…

Read more »

Retirement plan
Dividend Stocks

3 Best Ways to Invest for Retirement 

Are you worried about retiring in a weak economy? Here are three ways to invest for retirement while hedging against…

Read more »

analyze data

3 Stocks to Invest in a Sideways Economy

Stocks like Dollarama (TSX:DOL) are excellent in a stagnant economy.

Read more »

Couple relaxing on a beach in front of a sunset
Dividend Stocks

TFSA Couples: How to Make $800/Month in Tax-Free Income

With a cumulative contribution room of $176,000 TFSA couples can easily generate more than $800 in monthly dividend income.

Read more »

gold stocks gold mining
Metals and Mining Stocks

Gold Stocks Are Gaining Steam: Are They a Buy at Current Prices?

Gold stocks will likely steal the limelight this year, making up for their last year's underperformance.

Read more »

gas station, convenience store, gas pumps

Couche-Tard Just Made a Huge Acquisition: Is the Stock a Buy Now?

Alimentation Couche-Tard (TSX:ATD) stock looks way too cheap to ignore after its latest blockbuster deal!

Read more »