Aurora’s Big Miss

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

If you still needed additional proof that the agricultural end of the cannabis business is in trouble, Aurora Cannabis Inc. (NYSE:ACB) revealed everything this week.

Sales of dried plant matter are booming and are up 36% over the past year as consumers across North America who have been trapped at home are looking for a way to cut the boredom. As one of the top cultivators, ACB should be making money hand over fist.

But there’s a problem. Most of those people are smoking the cheapest strains on the market. ACB’s average price per gram sold has dropped 30%, leaving the company growing more weed and making less money.

Revenue is down 27% from last year and has even weakened 5% from quarter to quarter. That simply isn’t the growth curve that investors came here to see.

ACB and its peers gambled on being able to sell higher-end products. Cost-conscious consumers opted for value instead.

And there’s simply too much low-grade weed to support prices where they are. When one buzz feels almost as good as another, every harvest makes dispensaries happy while forcing cultivators to offer discounts simply to clear the warehouse.

I’m not shocked to see the cannabis group down 12% this week. Strong names closer to the retail customer will bounce back, as will those with a real value-added processing franchise.

We’ve talked about interesting retail names here. My IPO Edge subscribers are already having fun there. There’s more ahead.

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