2 Cannabis Stocks To Avoid In January 2021

: ACB | Aurora Cannabis Inc. Common Shares News, Ratings, and Charts

The cannabis industry has a lot of room for growth, not least because of positive position on it expected of the Biden Administration. However, investors need to be careful while investing in this sector at this stage. Arizona, South Dakota, New Jersey, and Montana have decriminalized adult-use cannabis. But the legalization of recreational cannabis in the United States still has a long way to go.

The sector is still at a nascent stage and largely speculative. There are many pot companies that, despite reporting a sales growth, have not hit break-even. Their businesses continue to grapple with issues including high operating costs, logistic bottlenecks, and tight regulatory restrictions.

The industry is also bracing for broader consolidation. Many overseas companies planning to find a foothold in the U.S. market are collaborating with players that have a stronghold in the country. This all adds to the uncertainty around the potential performance of pot companies in the near-term.

Against this backdrop, we believe it is wise to stay away from stocks such as Aurora Cannabis Inc. (ACB - Get Rating) and Tilray, Inc. (TLRY - Get Rating). These companies still must strengthen their fundamentals and find firmer ground.

Aurora Cannabis Inc. (ACB - Get Rating)

ACB primarily deals with the production and distribution of medical cannabis, which includes different strains of dried cannabis, cannabis oil and capsules, and topical kits. Daily Special, ROAR Sports, CanniMed, AltaVie, MedReleaf, Whistler, Woodstock constitute ACB’s brand portfolio. In addition,  the company sells vaporizers, consumable vaporizers, valves, screens, and herb mills for consuming its CanniMed products.

During its first fiscal quarter ended September 30, 2020, ACB’s revenue fell 8% to $52.7 million. The company is committed to some serious cost-cutting. In its December 16 operational note, the company indicated that it is shifting to a more variable cost structure and scaling back some of its products. ACB intends to align its production to current demand for its premium flower. This can be interpreted as an acknowledgment by ACB that it needs to strengthen its financials to fuel its growth initiatives. The resurgence of COVID-19 and with it an unpredictable demand environment is also hindering the company’s growth.

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