Aurora Cannabis (ACB.TO)

It is looking at getting a wider demographic and the US is a good place to go. There are costs with their listing in New York, but they don't have to worry about money. Things could go quiet in the cannabis sector for months.

Canopy Growth (WEED-T) vs Aurora Cannabis (ACB-T). The battle of the titans. Both companies do good things. He favors Canopy as it has a lower risk diversified growth strategy in 12 different facilities. He also likes the deal with Constellation for further diversification. Aurora is expected to grow with the expansion of the new facility near Edmonton, but he wonders if the growth will be staged and may be slower than people expect. Canopy also has an advantage given its size of existing product inventory.

A name that they wouldn’t be interested even if they would be interested in the space. He would prefer a company on the medical side or the retail side. He would be taking some profits if he owned the name. Many things are changing on the area. Maybe in 5 years it is legal in the US.

They have been on a pretty big buying spree. This is not one he is particularly hot on. In fall 2017 they were supposed to be complete in their building but are only a third done to date.

The caller was looking for a safer way to invest in cannabis stocks and suggested alternatives to Aurora. Mr. Levine said that he is not sure there’s a safe way to invest in any cannabis stock. He doesn’t own any marijuana stocks and thinks that his clients would rightly fire him if he bought any. The risk profile and volatility of this industry are far too high at this time. Aurora has a market cap of $12 billion against only $50 million in sales. For any rational investor, this makes no sense. It is potentially profitable for short-term trading by a speculator or gambler. He faced the same types of investment risks during the dot-com era and refused to invest in the rapid-growth stocks of that time, which rose dramatically and then went bust. With specific respect to Aurora, he says that the CEO is not a Bruce Linton. He considers the Aurora CEO far too promotional for a $9 billion business.

ACB-T vs. APH-T. The sector is highly volatile. APH-T is possibly a little higher quality and there have been rumours around them getting a large investment from a strategic player. TRST-T is the one he holds and is the best way to play this sector.

Doing good job of trying to backfill ridiculous valuation. There comes a point when someone is going to say “Do you make any money?” Same as the tech boom. Keep this in mind, it’s important.

The cannabis sector really moved up recently. ACB-T just made an agreement with liquor stores. Over the next few months they are very well positioned. This sector is very speculative, however. He would prefer Canopy Growth (WEED-T). This would fall into that group right afterwards. The industry is quite speculative.

It's challenging to figure out this sector not. He thinks there'll be a ramp up to the October legalization. There'll be more details on the extract market later this year to propel the stock higher. He's worried that more companies are going public to attract a finite nunber of ivnestment dollars. He's been cautious on the stock, and is picking his spots
within the overall sector.

This group has had a great run, but there is a lot of optimism priced into the space. What is coming next is the heavy lifting, having to show the money, so to speak. He is actually short the ETF HMMJ-T now. He is worried there was now follow through on stock prices, when the news of legalization was released.

Buying like drunken sailors causing dilution? Started with the build, then moved to just the buy at extended multiples. Now using cash, which is tamping down return potential. Storm clouds on horizon. Supply far exceeds demand. They’re not really thinking of shareholders when they’re buying at high multiples.

He does not own it and would not buy it. Cannabis will be legal in a few short months but does all this capacity expansion translate into profits. Until proven otherwise these are just producers of agriculture. Tomato producers do not trade at 20 times earnings. This sector will be a job creator and will take up some commercial space but he does not buy into it.

He sees cannabis as no different from the Internet craze in the 1990’s. Between now and October, he expects all these stocks to crash. The equity market is fueling this industry. Enthusiasm is driving the price, not fundamentals. In October, valuation will start being driven by fundamentals and the fundamentals won’t support the prices. The group will go down and then a few survivors will rise, but we don’t which ones yet.

Volatile with no reason. What will their real margins be after weed is legal? They may be tight. There's a lot of hype.

This is an aggressive buyer of other companies. They are partnering up with the liquor commission in Alberta and will command a higher premium for their favored access to that market.