The Motley Fool

Aurora Cannabis Inc. (TSX:ACB): Riskier Than Bitcoin?

Image source: Getty Images

The hype in the cannabis sector picked up from where the excitement in the most popular cryptocurrency ended. Both the cryptos and cannabis created bandwagon effects. Bitcoin’s glow as an emerging investment opportunity faded. Will the pre-ordained largest cannabis producer suffer the same fate?

Aurora Cannabis Inc. (TSX:ACB)(NYSE:ACB) can be the representative of cannabis in the same breath as Bitcoin is in the cryptocurrency world. That could happen in the event the company’s annual production jumps by 36.84% from 570,000 kilograms to 780,000 kilograms not later than 2022.

The bitcoin craze

Bitcoin produced many millionaires, but also caused the insolvency of many newbie investors. Investor interest in Bitcoin and other digital currencies soared to abnormal levels. The rise of bitcoin was utterly fantastic. From US$1,000 in early 2017, the price climbed close to US$20,000 or 1,900% by mid-December.

Value investor and billionaire Warren Buffett warned that bitcoin has “no unique value at all” and is basically a delusion. However, Buffett believes the underlying technology or ‘blockchain technology’ is valuable but cryptocurrency will not be instrumental to its success.

As of this writing, a bitcoin is worth US$5,431.95, or about -73% lower than $20,000. Those who came in late and invested US$1,000 at the peak, the value of their bitcoins are less than US$300. But don’t count out bitcoin yet. Proponents are certain that cryptocurrencies will soon be true-blue investments like stocks.

The cannabis mania

Unlike bitcoin and the cryptocurrency market in general, the cannabis sector’s legitimacy is not suspect. Aurora Cannabis is listed on both the New York Stock Exchange and the Toronto Stock Exchange. The shares of the company are traded alongside iconic American and Canadian corporations.

Aurora Cannabis is somehow viewed as a risky investment because of its own doing. However, the stock price will surely not fall by 1,900%. The honeymoon period is over and investors are waiting for Aurora Cannabis to be on the path to profitability.

Not the best choice

Aurora Cannabis is an industry giant, but is still finding its way. The company is under scrutiny because it’s doing things inimical to prospective investors and shareholders. Most cannabis players are not without debt. But Aurora Cannabis’ debt obligations are frightening.

Aurora Cannabis is raising funds via the issuance of convertible debt. While the funds would be utilized for expansion, current shareholders will be diluted and share value will drop. Industry peers are not in a precarious state, as they are partnered with institutional investors with the funding muscles.

While the cannabis sector is in a wild and woolly state at present, Aurora Cannabis has a higher degree of risk compared with the rest. The company is too preoccupied with growth that profitability and shareholder value have been relegated to the background.

Similar to bitcoin, Aurora Cannabis is a risky play. Given the current circumstance, it’s not the best choice, not yet. Other weed stocks are doing better in terms of ensuring growth and protecting shareholder value.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.