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Aurora now top pot pick at Cowen, dethroning Canopy Growth

Aurora’s “Sky” facility in Edmonton.

The first Wall Street firm to publish research on cannabis has crowned a new king of the burgeoning sector – Aurora Cannabis Inc. (ACB.TO)

Cowen initiated coverage of the Edmonton-based producer on Tuesday, dubbing the company its top cannabis pick, dethroning rival Canopy Growth Corp. (WEED.TO)

“The company’s large cultivation footprint, capable of producing over 575,000 kilograms, provides ACB with the necessary infrastructure to weather early storms in adult use while continuing to grow higher-value revenues in the medical market,” analysts led by Vivien Azer wrote in a research note.

“We believe that ACB will generate positive EBITDA by 4Q19 (June), which would be among the first LPs to reach that milestone, and ahead of large cultivation peers WEED and APHA.” 

Cowen assigned Aurora an “outperform” rating and a US$14 price target. New York-listed shares jumped 11.23 per cent to $8.04 at 2:38 p.m. ET on Tuesday.

Cowen expects Canada’s recreational and medical markets will be worth $12 billion by 2025.

Aurora said it captured 20 per cent of all consumer sales, according to Health Canada data, when it reported second-quarter results last month, booking $21.6 million in revenue.

The company reported net revenue of $54.2 million in its second quarter, up 363 per cent compared to the same period in 2018. Azer expects revenue to increase more than four-fold in the next three years, from about $305 million in 2019, to about $1.3 billion by 2022.

Cowen upped its valuation of the international medical market to $31 billion by 2024, from a previous estimate of $9 billion.

Cam Battley, Aurora’s chief corporate officer, has repeatedly referred to the company as “medical first.” Aurora’s international medical footprint spans 24 countries, with the addition of Portugal in late February.

“With the largest physical presence outside of Canada among the LPs, ACB is well positioned to capture share in the $31 billion international medical market,” Azer wrote. “By 2022,
we expect international to contribute 37 per cent to total company sales, which will initially be driven by Germany, while ACB is building up capacity to service countries in Latin America and Europe as patient adoption rates increase.”

Azer said while Aurora’s focus is primarily on medical, adult use represents the bigger revenue opportunity.

Cowen also initiated coverage on Cronos Group Inc. (CRON.TO) on Tuesday with a “market perform” rating and a C$29 price target.

“We like CRON’s story as an asset-light, global low-cost producer with operational support and
significant invested capital from MO (Altria Group Inc.),” wrote analysts led by Azer. “However, valuation prevents us from taking a more constructive position at this time.”

NASDAQ-listed shares climbed 8.95 per cent to $23.38 at 2:41 p.m. ET on Tuesday.

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