In less than six years, Aurora Cannabis (NYSE: ACB) has built a cannabis empire. It's an empire that stretches across five continents to 24 countries. Aurora now claims the highest production capacity in the entire cannabis industry. And the company's sales are growing by 21% -- not year over year but quarter over quarter.
But that's where Aurora has been and is now. Where will the company be in 10 years? There's no way to know for sure, of course. I think, however, that we can make some educated guesses.
What could happen but probably won't
Let's look at two scenarios that I don't think are likely to happen. First, I don't think Aurora will be out of business 10 years from now. Why? Momentum.
The global cannabis industry has a lot of momentum right now. More than 30 countries across the world have legalized medical cannabis with two countries, Canada and Uruguay, also legalizing recreational use of marijuana. Other countries are considering legalizing cannabis. And most of the cannabis markets across the world are still in their early stages. There's a lot of room for growth.
Aurora has a lot of momentum right now, too. That makes sense considering the company is one of the biggest cannabis producers in terms of production capacity, market cap, and sales. Importantly, a lot of Aurora's momentum is in international markets, an area where the company arguably ranks ahead of all of its peers. In my view, there's simply too much momentum for the industry overall and for Aurora itself for it to all fizzle out within 10 years.
The second scenario that I don't think will happen is for Aurora to be absorbed by a bigger company. Yes, this is a possibility. I suspect that Canopy Growth (NYSE: CGC) will become a division of Constellation Brands (NYSE: STZ) in the future. I'll be surprised if tobacco giant Altria (NYSE: MO) doesn't fully gobble up Cronos Group (NASDAQ: CRON) down the road. Perhaps Aurora will join their ranks, but it would require a 180-degree change in direction for Aurora's management team.
Billionaire investor Nelson Peltz is encouraging Aurora to not give up significant equity stakes as Canopy and Cronos have done. This approach could enable Aurora to deliver greater returns to shareholders over the long run. It also allows Aurora to partner with multiple companies outside of the cannabis industry. Aurora's executives and board of directors appear to be in alignment with this strategy that Peltz is advocating.
So, where will Aurora be 10 years from now if it's not out of business and not part of a bigger corporation? My prediction is that the company will be a successful player in a really big market.
I think that Aurora will be the top cannabis company in a fast-growing European cannabis market. Cannabis market researcher Brightfield Group projects that the European medical cannabis and cannabidiol (CBD) market will soar to nearly $8 billion by 2023. I wouldn't be surprised if the market is $15 billion or more by 2029.
Aurora already ranks as the leader in Germany, the most important European medical cannabis market. It already has EU GMP-certified cannabis production facilities. The company is in great shape to supply hemp-derived CBD in Europe thanks to its acquisitions of Agropro, the largest organic hemp producer in Europe, and Borelas, another European hemp producer and processor. Europe should be a tremendous growth driver for Aurora over the next 10 years.
I also predict that Aurora will be a significant player in the U.S. Sure, the company appears to be dragging its feet right now in getting into the U.S. hemp CBD market. My hunch, though, is that we'll see Aurora make some deals in the not-too-distant future with big U.S. companies that put it square and center in what could be a massive market within the next few years.
My take is that Aurora will compete in the U.S. marijuana market by 2029 as well. I don't look for the U.S. to fully legalize cannabis. However, I do expect changes to federal laws that allow individual states to make their own decisions about the legalization of medical and recreational cannabis.
If these assumptions are correct, the global cannabis market should be $100 billion or more by 2029. I think that with its production capacity, established operations, and the likelihood of partnership deals with major companies, Aurora could capture at least 5% of the global market. That would give the company an annual revenue of around $5 billion.
If we use a relatively conservative price-to-sales (P/S) ratio of four, that would put Aurora's market cap at $20 billion -- more than 150% higher than where it stands today. Tweak the P/S ratio or market share used in these projections a bit and Aurora could be worth a lot more 10 years from now.
Party like it's 2029?
Do I really believe that Aurora Cannabis will be a big winner in 2029? I do. Actually, I think that several cannabis companies will be big winners over the next decade. Some of them could be even more successful than Aurora.
However, it's important to remember that there are a lot of assumptions I'm making that could prove to be wrong. Don't party like it's 2029 while there's still uncertainty how things will turn out. There's a saying attributed to physicist Niels Bohr that's worth repeating: "Prediction is very difficult, especially about the future."
10 stocks we like better than Aurora Cannabis Inc.When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Aurora Cannabis Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 1, 2019