Investors who have been around marijuana stocks for some time will know that marijuana, while technically deemed a commodity, is represented by a wide range of prospects among its stocks. One end of the spectrum shows stocks with promising growth prospects; on the other end, stocks that are far more risky. Some stocks have performed well over quarters; others have tanked.
Among these marijuana stocks, two big names continue popping up in industry conversations, as market players consider the question: which stock is the better investment?
Aurora Cannabis (NASDAQOTH:ACBFF) and Aphria (NASDAQOTH:APHQF) are two such marijuana stocks. Either of these Canadian growers appear to possess tremendous potential for growth. However, at a cursory glance, Aurora Cannabis leaves Aphria in its shadow. Aurora has outperformed Aphria, topping its competitor’s 2017 gains and raising its own stock values significantly this year while Aphria’s have fallen.
Savvy investors know that no information – past or present – can accurately predict future performance, leaving everyone circling back to the question of which marijuana stock is the better choice.
With this knowledge of the ever-changing flux of the industry in mind, take a look at how the two marijuana growers size up to each other right now.
There are two compelling reasons for an investor to consider purchasing Aphria marijuana stocks.
Firstly, the demand for medical marijuana is rising. Secondly, the industry appears on the verge of an influx of opportunities with Canada’s impending legalization of recreational marijuana.
As far as medical marijuana is concerned, Aphria is already reaping the benefits of higher demand. In its own country, Aphria is one of the largest licensed suppliers of medical marijuana. It was also the first Canadian marijuana stock to achieve positive earnings across consecutive quarters and report positive operating cash flow.
Within the core of Aphria’s medical cannabis market, business is humming. The company reported sales growth year-over-year nearing 63% in the end of its 2017 quarter. Unfortunately, Aphria’s revenues did not mirror this rapid growth, totaling only CAD$8.5 million – a low figure, considering the company’s nearly $2 billion market cap.
Not figured into the relevant marijuana stocks company Aphria’s revenue at this point, however, are opportunities for significant contribution from a global MMJ market that is also in the midst of rapid growth.
Investors may soon see this change for Aphria, starting with the company’s acquisition of Nuuvera in January. Prior to this acquisition, Aphria had arranged medical cannabis supply agreements with Australia; adding Nuuvera to the mix expanded the company’s global presence to an additional nine international markets, the largest of which is the German market.
In the past months, Aphria has pulled back from one market, the U.S., gradually scaling back its presence. The company opted to reverse its course of expansion in the U.S. last year after the Toronto Stock Exchange threatened delisting of cannabis growers with significant ties in the U.S.
Even with scaling back from the U.S. market, Aphria stands to gain tremendously from the opening of recreational marijuana sales in Canada later this year. Keeping in step with the anticipated demand, Aphria has adjusted its focus to the task of production capacity expansion. The company expects its production capacity to be near 230,000 kg per year by the beginning of 2019 between supply agreements arranged with other growers and production at its own facilities.
The same factors listing marijuana stocks from Aphria as a viable investment option can also be applied to Aurora Cannabis; the difference lies in Aurora’s position.
To start, Aurora does more medical marijuana business than Aphria. The company’s most recent quarterly results posted a revenue figure that more than tripled from the same period last year, a total of CAD $11.7 million.
Among international MMJ markets, Aurora already enjoys good position. Its German subsidiary, Pedanios, was responsible for more than one-fifth of Aurora’s sales last quarter. The company is positioned in Denmark, Italy, and Australia as well.
Aurora made headlines with the acquisition of CanniMed Therapeutics, boosting the marijuana stocks Aurora market cap up and over $4 billion.
Yet this acquisition was but one strategy in Aurora’s positioning itself to profit from opportunities expected in Canada’s looming recreational market. Aurora is also working toward significant internal expansion of its production capacity. The company projects its annual production capacity to be 240,000 kg plus CanniMed’s contribution of 19,000 kg.
Yet Aurora has also shown strategic forethought, beyond boosting capacity, in preparation for retail sales on the recreational cannabis market. One of the company’s most notable moves was its purchase of stakes in Liquor Stores N.A. Ltd., which greatly increased its retail footprint across Canada.
Which of these marijuana stocks is the better buy?
It should be said that both companies stand to enjoy significant sales growth over the next several years. Not only is the medical cannabis market expected to increase in Canada to an annual CAD $3 billion, but, Canada’s recreational market anticipates demand that is double or triple that size. The opportunities for medical marijuana on international markets are only getting started.
All things considered, however, marijuana stocks from Aurora still seem to be the better investment of the two. The company has demonstrated more readiness than Aphria in light of opportunities on the horizon, as well as possessing a larger internal production capacity. Aurora is better positioned in Germany to take advantage of the MMJ market and other opportunities that will likely arise among European countries. The company also seems to possess a greater retail footprint in Canada for recreational marijuana sales.
In closing, investors need to keep in mind Aurora’s steep stock valuation and the risks associated with stocks in which massive growth has already been figured into the price. Greater growth potential sometimes comes with greater risk.
(For another analysis of marijuana stock choices, read Which of These Marijuana Stocks is a Better Investment?)