Forget Aurora Cannabis and Buy This Pot Stock Instead!

Here’s why Green Thumb Industries is a much better long-term bet compared to Aurora Cannabis.

| More on:
Cannabis stocks have fallen.

Canadians looking for exponential gains can consider investing in the cannabis sector. Canada legalized marijuana for recreational use almost three years back, and now it’s quite possible for pot to be legalized at the federal level in the United States as well. However, while Canadian cannabis producers such as Aurora Cannabis (TSX:ACB)(NYSE:ACB) are struggling with lower-than-expected demand, negative profit margins, and a slew of other structural issues, their counterparts south of the border continue to grow at an enviable pace.

The Canadian cannabis market is forecast to grow from US$2.6 billion in 2020 to US$6.4 billion in 2026. Comparatively, the legal marijuana market in the U.S. is forecast to surpass US$40 billion in sales by the end of 2025.

Aurora Cannabis stock is down 95% from all-time highs

Canadian marijuana giant Aurora Cannabis remains popular among investors, but it has burnt massive wealth in the last two years. ACB stock is, in fact, down 95% from all-time highs and has declined 17% year to date as well.

In its fiscal third quarter of 2021 (ended in March), Aurora’s net cannabis sales were down 21% year over year while recreational sales fell 53%. In the first three quarters of fiscal 2021, ACB has reported an operating loss of $232 million, which was 18% lower compared to the prior-year period.

ACB’s management had in fact forecast to reach a positive EBITDA in the quarter ended in September 2020 but this milestone seems a distant dream right now. In order to support its massive cash burn, Aurora Cannabis has also diluted shareholder wealth at a rapid pace by raising equity capital several times. In fact, Aurora’s outstanding share count has risen from just 1.3 million in 2014 to almost 200 million in March 2021.

Despite the significant pullback in ACB stock, analysts are not bullish on the pot giant. The average 12-month price target for Aurora Cannabis is $8.43, which is lower than its current trading price of $8.76.

Green Thumb Industries is racing towards profitability

While ACB is grappling with negative margins, Green Thumb Industries (CNSX:GTII) is racing towards profitability. Green Thumb is a U.S-based cannabis stock that is forecast to increase sales from US$556 million in 2020 to US$1.19 billion in 2022. Its earnings are also estimated to rise from US$0.07 per share to US$0.68 per share in this period.

In the second quarter of 2021, Green Thumb sales were up 85.4% year over year at US$221.9 million. It also reported a net income of US$22.1 million compared to a loss of US$12.9 million in the year-ago period.

It might seem that Green Thumb is trading at a steep valuation given its market cap of $6.4 billion. However, the cannabis leader’s robust growth and improving profit margins make it an enticing bet for long-term growth investors.

Over 20 states in the U.S. have legalized both recreational and medical marijuana, and Green Thumb already has a network of 62 dispensaries in the country. With a cash balance of US$359 million and debt of less than US$200 million, Green Thumb is a cannabis stock that is attractive due to a strong balance sheet, widening margins, and stellar revenue growth.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Green Thumb Industries.

More on Cannabis Stocks

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

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 »

Coworkers standing near a wall
Cannabis Stocks

Why Is Everyone Talking About Canopy Growth Stock?

Canopy Growth stock (TSX:WEED) saw shares surge in the last two weeks for a variety of reasons investors can dig…

Read more »

Pot stocks are a riskier investment
Stocks for Beginners

Why Shares of Cannabis Stocks Are Rising This Week

Cannabis stocks received a boost this week as the White House urged the drug enforcement administration to reschedule the drug.

Read more »

A person holds a small glass jar of marijuana.
Stocks for Beginners

Why Canopy Growth Stock Jumped 16% on Wednesday

Canopy Growth stock (TSX:WEED) is up 16% on Wednesday, adding to a surge of 60% growth in the last week…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Is the Worst Over for Canopy Growth Stock?

Down 99% from all-time highs Canopy Growth stock has burnt investor wealth and remains a high-risk investment.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Steer Clear: This Stock Spells Trouble

A newly listed cannabis stock is outperforming in 2024 but investors should stay clear to avoid trouble and losses.

Read more »

Cannabis stocks have fallen.
Cannabis Stocks

2 Best Marijuana Stocks to Buy This Month

Marijuana stocks in the U.S. such as Green Thumb and Curaleaf can help you deliver outsized gains to investors in…

Read more »