Why Canopy Growth, Aurora Cannabis, and Tilray Stocks All Exploded Higher Today
On Monday, stocks related to marijuana experienced a surge once again in the stock market. One example is Tilray Brands (TLRY 9.60%), where its shares increased by 9.4% until 1:25 p.m. ET. The other two most popular stocks related to publicly traded marijuana made significantly more gains. Canopy Growth (CGC 81.37%) soared by 54%, while Aurora Cannabis (ACB 72.17%) rocketed by a remarkable 74%.
Investors are likely perplexed by the current situation.
That's a really good query. Let's check if I can give a response.
Starting off with Aurora Cannabis, we have an announcement from the company that was released on Friday afternoon, after the markets had closed for the day. The authority declared that it had repurchased roughly $9 million worth of its convertible debt and had sold 20.1 million freshly issued shares in order to acquire the funds for the buybacks. The motive behind this step was to lower the burden of debt, save approximately $660,000 each year in interest payments, and help the company reach the objective of showcasing a positive free cash flow (FCF) by 2024.
The announcement may have come as a surprise to investors. This is because, based on the predictions made by analysts surveyed by S&P Global Market Intelligence, Aurora Cannabis is not expected to make any profits based on accepted accounting principles or have positive free cash flow until at least 2026. However, Aurora's management has stated that they plan to reach this goal two years earlier than expected and are taking steps to ensure that this happens.
It's understandable why investors are surprised, and it's no surprise they're expressing their approval through applause.
However, I am curious whether Aurora Cannabis can achieve this objective much earlier than expected by Wall Street, or even achieve it at all.
On the other hand, some investors might be adopting a different strategy. They might be considering the possibility that Wall Street misjudged Aurora Cannabis. If that's the case, they might also be wondering if Wall Street made the same mistake with Canopy Growth, which isn't anticipated to make a profit until 2028. As a result, they may be speculating that Canopy could become profitable sooner than expected.
What is the situation with Tilray? Experts asked by S&P had predicted that Tilray would make a GAAP profit in 2026, just like Aurora. However, they also believed that Tilray would start producing some free cash flow in 2024, unlike Aurora. If Aurora is anticipating making cash profits next year, it could further boost the expectations that Tilray will do the same.
We have some good news from our nation's capital! Lawmakers are pushing to advance the SAFE Banking Act, which could help legalize marijuana, and the U.S. Department of Health and Human Services is asking the DEA to reclassify marijuana as a less harmful substance. These developments are causing stocks in the cannabis industry to rise, and investors are feeling optimistic about the future. They may even believe that Aurora's promise of positive cash flow by 2024 is more likely to come true if marijuana regulations become less strict.
It's possible that people are correct in their belief. However, people who invested in cannabis in the past have been disappointed due to excessive optimism. Three popular cannabis companies, Tilray Brands, Aurora Cannabis, and Canopy Growth, have experienced a decline in stock values, with Tilray Brands' down by 74%, Aurora Cannabis' down by 88%, and Canopy Growth's down by 91% in the last two years. Instead of naively thinking that things will change, it's wise to look at the statistics and verify whether Aurora Cannabis can keep the promises they make before investing your hard-earned money in this company.
Rich Smith doesn't own any shares in the stocks discussed. The Motley Fool suggests investing in Tilray Brands. The Motley Fool openly shares their policy on disclosure.
