Better Buy After Earnings: Canopy Growth Corp (TSX:WEED) Stock or Aurora Cannabis (TSX:ACB) stock?

Marijuana industry behemoths Canopy Growth Corp (TSX:WEED)(NYSE:CGC) and Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) reported solid earnings. Which stock is the better buy?

| More on:

It was a big week for the cannabis industry, as two of the industry’s largest companies reported quarterly earnings. After a dismal fall quarter in which the majority of pot stocks missed estimates, investors were looking to see if the ship had course corrected.

Bellwethers Canopy (TSX:WEED)(NYSE:CGC) and Aurora Cannabis (TSX:ACB)(NYSE:ACB) both reported earnings last week. The good news? It appears that some of the issues that plagued the roll-out of recreational cannabis are starting to subside. Which is a better buy after earnings? Let’s take a look

Revenue topped estimates

Canopy reported revenue of $83 million, topping estimates by $1.21 million, or 1.5%. This represented massive growth of 283% over the fourth quarter of 2017 and 255% sequentially. In the quarter it sold 10,102 kgs of cannabis — up 334% from the fourth quarter of 2017.

It wasn’t all good news. The company posted a net loss of $0.38 per share — $0.13 more than expected. Likewise, despite record cannabis sales, analysts were expecting the company to sell 12,782 kgs of cannabis in the quarter. Another warning sign emerged. South of the border, cannabis prices have been falling, and it looks like the trend has made its way to Canada.

Canopy’s average selling price dropped 12% to $7.33 per gram. Aurora was also not immune, with its average selling price for dried cannabis and extracts dropping by 28% and 18% per gram.

Aurora also posted blowout sales, which increased 363% year over year to $54.178, topping estimates by 4.52%. Much like Canopy, it posted a greater-than-expected loss of $0.25 per share, missing by $0.20. It sold 6,999 kgs of marijuana in the quarter — below expectations for sales of about 7,500 kgs.

Unlike Canopy, Aurora is more transparent in the sense that it releases costs per gram sold ($1.92). This represented a 33% jump in part as a result of the ramp up of its Aurora Sky facility.

Winner: This is a tough one to call, as they each had similar performance. As such, I consider it a tie.

Company strategy

Interestingly, the quarter provided some clarity on the difference in company strategies. Aurora considers itself first and foremost a medical marijuana company. Medical marijuana accounted for 55% of revenue in the fourth quarter.

Canopy appears focused on the recreational market. Medical cannabis accounted for only 22.6% of sales. In fact, sales in the category dropped by 18% year over year in Canada.

Aurora claimed to have captured approximately 20% of all recreational consumer sales across the country with its $21.6 million in revenue. This would imply a second-quarter recreational market valued at $108 million. Based on this, Canopy appears to have captured a 66% share of the market based on 71.6% million in revenue.

Winner: Canopy’s focus on recreational marijuana gives it the edge. Recreational use is expected to outstrip medical use by a large margin and has far greater growth potential. Pot stocks are trading at valuations that are based on their ability to capture a big share of the recreational market.

Top cannabis stock for 2019?

The marijuana market is ever evolving; so too are my own opinions. In January, I had pegged Aurora as the better buy. However, after digesting the most recent earnings, I believe Canopy is the better buy today. This is based on company strategy. It is important to note that Aurora’s strategy isn’t a bad one. However, Canopy’s focus on the recreational market is the better growth option. There is one fact that remains consistent: both companies are the best in their class.

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 Mat Litalien has no position in any of the stocks mentioned.

More on Investing

Investor reading the newspaper
Dividend Stocks

Emerging Investment Trends to Watch for in 2025

Canadians must watch out for and be guided by emerging investment trends to ensure financial success in 2025.

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

Watch Out! This is the Maximum Canadians Can Contribute to Their RRSP

We often discuss the maximum TFSA amount, but did you know there's a max for the RRSP as well? Here's…

Read more »

nvidia headquarters with grey nvidia sign in front with nvidia logo
Tech Stocks

If You’d Invested $100/Month in Nvidia Starting a Decade Ago, Here’s How Much You’d Have Now

Nvidia has helped long-term investors create generational wealth. But is the tech stock still a good buy right now?

Read more »

chart reflected in eyeglass lenses
Tech Stocks

Is Shopify Stock a Buy, Sell, or Hold for 2025?

Shopify (TSX:SHOP) still looks like a tempting growth stock going into a new year with strength.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

Outlook for Fortis Stock in 2025

Fortis stock is up 10% in 2024. Are more gains on the way?

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

3 Low-Volatility Stocks for Cautious Investors

As uncertainty grips the market, here are three low-volatility stocks you can buy and hold with confidence.

Read more »

Metals
Metals and Mining Stocks

3 Unstoppable Metal Stocks to Buy Right Now for Less Than $1,000

Gold prices are expected to keep rising or stabilize in the next few months, and the precious metal stocks rising…

Read more »

sale discount best price
Dividend Stocks

Time to Buy! 1 Dividend Stock That Hasn’t Been This Cheap in Years

This dividend stock provides practically everything: a stable income stream, steady occupancy rates, and more growth to come.

Read more »