Aurora Cannabis Inc (TSX:ACB) to Sell Pot in Mexico: Is the Stock a Must-Buy?

Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) continues to expand its reach around the world, but is it necessary?

| More on:

Last week, Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) announced that it had secured an agreement to sell cannabis in Mexico through a deal with Farmacias Magistrales S.A., a pharmaceutical company with 500 hospitals and pharmacies across the country. With the only license in Mexico to import cannabis, Farmacias will be able to import and sell Aurora’s products, even those containing THC.

While Mexico has made progress towards legalization, recreational marijuana use is not entirely legal just yet. Nonetheless, it is definitely headed toward that direction. This is a big opportunity for Aurora to gain a foothold into yet another country as it continues to expand into more regions around the world.

Aurora CEO Terry Booth stated in the release, “This new exclusive partnership further expands Aurora’s early mover advantage in Latin America, allowing us to become a leading player in the development of the medical cannabis system in Mexico, a legal market of 130 million people.”

Takeaways for investors

From an investment standpoint, this is an easy win for Aurora, as through and importing agreement the company doesn’t expose itself to much risk and can just ship its products to Farmacias, who can then distribute it as necessary. Aurora’s risk is limited to Farmacias paying its bills, as it basically becomes a customer and distributor with significant reach across Mexico.

The market size of 130 million people certainly makes it an appealing opportunity, particularly with Aurora having exclusive access to it under this agreement.

The one concern I would have is whether Aurora’s price point for this market would be competitive enough for it to turn a profit. What consumers can afford to pay for legal cannabis in Mexico is far different than what they can pay for it in Canada, and so any profit for Aurora might be a slim one.

In addition, the black market for cannabis in Mexico is very significant and will further put pressure on prices, as a high price is unlikely to attract many consumers.

For those reasons, I don’t expect Aurora will obtain a high price per gram, which might not help its bottom line too much given the company has to incorporate shipping costs and the overhead associated with coordinating and managing deliveries as well.

Bottom line

The move for Aurora is clearly to add market share and continue to boost its top line. It’s a good move, but with investors being increasingly concerned about profitability, it might not do much to help there.

In its most recent quarterly report, Aurora saw a 260% growth in its revenues, although that has done little for the stock price, as it hasn’t shown much progress since then and year to date it is down around 20%.

As a result, I wouldn’t say that Aurora is a buy on these results, especially with the Canadian market already struggling with a lack of supply, the company isn’t in need of finding more place to sell its products to just yet.

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 David Jagielski has no position in any of the stocks mentioned.

More on Investing

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

edit Sale sign, value, discount
Stocks for Beginners

These 3 Growth Stocks Are on Sale and Set to Surge

Some growth stocks are on sale right now that offer massive long-term potential for investors. Here's a trio to consider…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Why Canopy Growth Stock Could Double in 2024

Canopy Growth (TSX:WEED) stock saw its share more than double in the last two weeks. So, can it do it…

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »