A stock that triples value in just 12 months sounds great. But what about a stock that quadruples during the same period?
Two marijuana stocks, Aurora Cannabis (NASDAQOTH: ACBFF) and Cronos Group (NASDAQOTH: PRMCF) have generated fantastic returns over the last year. Aurora stock is up more than 300%, while Cronos has gained nearly 200% in the last 12 months. But which of these marijuana stocks is the better buy now? Here's how Aurora and Cronos compare.
The case for Aurora Cannabis
Throughout much of last year, Aurora Cannabis ranked between second and fourth among Canadian marijuana growers in terms of market cap. Now, however, Aurora is running neck-and-neck with Canopy Growth for the distinction of claiming the largest market cap. And the reason why Aurora has come on so strong stands as one of the top arguments for the stock.
Aurora's recent surge stems in large part from its pending acquisition of CanniMed Therapeutics (NASDAQOTH: CMMDF). What started out as a bitter battle to buy the smaller marijuana grower ended amicably in January.
CanniMed offered Aurora a quick way to expand its production capacity. With Canada set to legalize recreational marijuana later this year, the companies with the largest capacity stand to win big. As of the end of 2017, Aurora's production capacity stood at 240,000 kilograms per year. The addition of CanniMed adds another 19,000 kilograms annually of funded capacity.
Aurora is also making headway in preparing for the direct retail sales of marijuana. The company recently announced a strategic investment in Liquor Stores N.A. Ltd., which operates 231 liquor stores in Canada. With the deal, Liquor Stores is converting some of its retail locations into cannabis retail stores that will market Aurora's products. Liquor Stores is also establishing new retail locations catering to recreational marijuana customers.
It's not just the Canadian marijuana market that has investors excited about Aurora Cannabis, though. In its fiscal 2018 Q2 update, Aurora reported sales of medical marijuana to the German market more than doubled from the previous sequential quarter to $2.5 million, representing over 21% of the company's total revenue. That's still a small amount, but it's still really early. International sales, especially in Germany, presents a nice growth opportunity for Aurora.
The case for Cronos Group
While Aurora has the strongest momentum recently, Cronos Group was the best-performing marijuana stock of 2017, with shares soaring 600% last year. Like Aurora, Cronos has achieved impressive sales growth from the medical marijuana market in Canada.
Cronos is also getting ready for the legalization of recreational marijuana in 2018. The company launched Original BC (OGBC) as a platform for two recreational marijuana brands. One of those brands will target the mainstream market, with the other targeting the premium market.
Although Cronos currently only has an annual production capacity of around 7,000 kilograms, the company is ramping up quickly in anticipation of tremendous growth in demand. Cronos is expanding its Peace Natural facility in Ontario and expects to have annual capacity topping 40,000 kilograms by 2019. The company states that this facility will be "the largest purpose-built indoor cannabis production facility in the world."
Cronos is also targeting international markets. It formed a joint venture with Israeli agricultural collective settlement Gan Shmuel to grow and distribute medical marijuana. The joint venture is building a greenhouse that can produce 5,000 kilograms of marijuana each year. A second construction phase will increase the annual production capacity to 24,000 kilograms.
Germany presents another opportunity for Cronos. The company signed an exclusive supply agreement with Pohl-Boskamp to provide medical marijuana for the German market. Pohl-Boskamp distributes products to over 12,000 German pharmacies. In addition, Cronos formed a joint venture in Australia to provide medical marijuana to Australia, New Zealand, and Southeast Asia.
Which of these two marijuana stocks is the better choice for investors? In my view, it's Aurora Cannabis.
I think the single most important advantage that Aurora has is capacity. Right now, Cronos is way behind in production capacity, and there's no reason to think that it will catch up with Aurora. This means that Aurora is in a better position to serve the domestic Canadian market as well as the international market.
Having said that, I do think it's possible that Cronos Group could find itself an acquisition target for a larger marijuana grower looking to add capacity. A buyout -- or even rumors of a buyout -- could drive the stock significantly higher.
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