One of the worst-performing TSX stocks in recent years is Aurora Cannabis (TSX:ACB). Shares of the Canadian marijuana giant are currently trading 99% below all-time highs, valuing the company at a market cap of $260 million.
Similar to most other pot producers in Canada, Aurora Cannabis has been impacted by oversupply, cannibalization from a thriving illegal market, high inventory levels, and much more. In the last 12 months, higher interest rates have made it expensive to obtain debt funding, while supply chain disruptions and labour shortages continue to exist.
Let’s see if ACB stock can stage a comeback in 2023.
Why Aurora Cannabis stock is a high-risk investment?
In the five years, prior to marijuana legalization in October 2018, ACB stock returned an emphatic 35,620% to investors. Most analysts were then bullish on the company, which had 15 production facilities, allowing it to produce over 600,000 kilos of cannabis each year. However, in 2022, Canadians consumed less than 400,000 kilos of marijuana.
We can see Aurora Cannabis overestimated demand by a wide margin. The company also aggressively acquired other cannabis operators to increase market share and paid a hefty premium for these purchases. As market sentiment normalized, Aurora Cannabis had to report multi-billion-dollar goodwill write-downs.
Due to an oversupply of marijuana, Aurora Cannabis continues to sell its cannabis products at a massive loss. In the last four fiscal years, its operating losses have surged over $1.2 billion. To offset losses, it has shut down multiple production facilities, lowered its employee count, and increased market share in the higher-margin medical marijuana segment. But it still reported an operating loss of $125.4 million in the last two quarters.
Aurora Cannabis has diluted shareholder wealth several times by raising equity capital to support its cash-burn rates. Between mid-2014 and the end of 2022, its share count has increased from 1.3 million to 341 million.
Analysts expect ACB stock to more than double in the next 12 months. But its weak fundamentals make it a high-risk bet in 2023.
Buy shares of Green Thumb Industries instead
A multi-state operator south of the border, Green Thumb Industries (CNSX:GTII) is valued at a market cap of over $2 billion. The company has expanded its presence from 39 stores in eight states in 2019 to 99 retail outlets in 15 states in 2022. This rapid expansion has enabled Green Thumb to end 2022 with US$1 billion in sales, up from just US$216 million in 2019.
While its Canadian peers are struggling with losses, Green Thumb reported an adjusted net income of US$12 million in the fourth quarter. In fact, it has now reported a positive net income for nine consecutive quarters.
Green Thumb is well positioned to benefit if the U.S. states continue to legalize the consumption of marijuana. Further, if pot is legalized at the federal level in the U.S., you can easily expect shares of Green Thumb to explode.
Armed with $200 million in cash and priced at less than two times trailing sales, GTII stock is a compelling bet for those looking to gain exposure to the cannabis sector. Analysts remain bullish and expect GTII stock to surge over 200% in the next 12 months.
