When it comes to marijuana stocks, it can sometimes be difficult to separate one from another. That’s why there’s often a lot of price movement when there is news related to a stock, whether good or bad.
This past week, Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) got a boost in price when Cowen Inc., an investment bank in the U.S., said that Aurora was its top pick for the sector. That might be a little surprising given Canopy Growth Corp (TSX:WEED)(NYSE:CGC) has more sales, a beverage deal, and keeps on adding big names into the mix.
However, with Canopy Growth rising more than 90% over the past 12 months while Aurora has declined by 7%, it’s easy to see why the investment bank might see more opportunity with Aurora. At around half the size of Canopy Growth, Aurora is far behind its biggest rival, at least for now.
Cowen gave Aurora an outperform rating and expects the price to rise to $14, which would be an increase of 35% from its closing price as of Friday. Not only is capacity a big consideration for Cowen, but also, what it considers to be a more important medical marijuana market.
“The company’s large cultivation footprint, capable of producing over 575,000 kg, provides ACB with the necessary infrastructure to weather early storms in adult use while continuing to grow higher-value revenues in the medical market
Why the medical market could be much more lucrative
For all the excitement in the marijuana industry, sometimes the medical segment gets overlooked. It’s a very good observation by Cowen because medical sales could prove to be more valuable, especially when looking at a global scale. Although the big North American markets may focus on recreational sales, in other parts of the world that might not be the case. We’ve seen marijuana legalization make progress around the world but to date, only two countries have legalized it for recreational purposes.
As we see more research done and learn about more of the ways that cannabis can be used medicinally, that will drive a lot of sales growth. Right now, there’s a lot of uncertainty surrounding what cannabis can and cannot do and that puts many people on the fence, including both doctors and patients.
Cowen, however, is expecting big things for the global medical market, which it projects to grow to US$31 billion by just 2024. Meanwhile, the total value of the total Canadian market is expected to be just $12 billion by 2025.
Let’s also not forget that Aurora, like Canopy Growth, is eyeing the U.S. market which is now opening up its door to hemp. And with many presidential candidates being receptive to legalizing marijuana at the federal level, we’ll likely see significant opportunities once that happens.
There’s a lot of potential out there for Aurora and Cowen expects sales for 2019 to reach $305 million. By 2020, that number is expected to rise to $742 million and $1.34 billion by 2022. Those are some big numbers for a company that over the past four quarters has generated sales of just $119 million. Those are some optimistic numbers, but they aren’t impossible given what we’ve seen from the industry thus far and how big it might be.