Aurora Cannabis (TSX:ACB) saw shares drop this week as the cannabis producer announced its plans to consolidate shares on a 1-for-10 basis. This reverse stock split by Aurora stock is the latest among cannabis stocks, but does that mean success?
What happened
The biggest issue for Aurora stock is staying listed. Shares currently trade at $0.50 as of writing. If it remains below the $1 mark for over 30 trading days, then it risks being delisted. Therefore, consolidating shares gives the company better access to a wide range of institutional investors.
The plan is set to take place on February 20, and would be the second time the company consolidated shares. The first was on a 1-for-12 basis back in 2020.
But shares seem to have dropped for a reason. So the big question is, should investors see this as a way to get back into Aurora stock? Or is it perhaps a sign of worse things to come?
Positive, but no future plans
Aurora currently sells its cannabis products mostly in Canada, but continues to export on a global scale through the medical market. This arrangement has certainly worked, as the cannabis stock is currently generating consistent positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). Therefore, free cash flow looks like it is on the way.
However, even as medical cannabis revenue climbs by high single digits over the next decade, the company has less exposure to the recreational markets. Aurora stock simply doesn’t have a plan forward for how it will expand beyond cannabis cultivation and the medical market.
This leaves room for other companies to take over the market without a plan. And as the company has a history of diluting shares, as well as these consolidations, it just doesn’t seem as if Aurora stock has shareholder interests well at heart.
Another option
If you’re looking for growth in this case, it might be a good time to consider another cannabis stock. For that, I would look to Organigram Holdings (TSX:OGI). Organigram stock is the second-largest producer of marijuana in Canada, and is a pure-play cannabis company.
This is why it partnered with British American Tobacco, with the tobacco company announcing a $124.6 million investment into Organigram stock this year. The company acquired about 13 million common shares at $3.22. Given they trade at $2.44, that’s still major upside.
Furthermore, two more investments are coming on August 30, 2024 and February 28, 2025. And while this is a Canadian-focused company, the cannabis stock does have global operations. This includes in Germany, where the company recently sent its first shipment of bulk dried flowers for a German company’s medical division.
So instead of the risk of Aurora stock, I would go with a cannabis stock that is both already profitable and seeing growth. Shares are now climbing back for Organigram stock after bottoming out in October, making now an excellent time to consider the cannabis stock.
