Aurora stocks propel market but advisor warns that quarterly earnings will reveal serious players
Coca-Cola’s interest in a deal with Aurora Cannabis adds credibility to the sector but investors are still buying on rumour, according to an investment advisor.
The US drinks giant wants to develop drinks infused with CBD and is in talks with the Canadian company, widely considered the country’s second major player in the country behind Canopy.
Aurora’s shares jumped as much as 23% before closing 16% up on $9.98 yesterday after Coca-Cola confirmed its interest.
“We are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world,” Coca-Cola spokesman Kent Landers told Bloomberg News. “The space is evolving quickly. No decisions have been made at this time.”
Michael Currie, TD Wealth vice president, said the firm’s move is significant not just because of its size but because of the fact it’s the first non-alcohol drinks company to make a move towards the marijuana industry. Coca-Cola wants to diversify as traditional drinks sales fall and recently acquired Costa Coffee for $5.1 billion.
Currie said this was good news for the Canadian market but warned investors not to get carried away with headline excitement.
He said: “It made the news even in the States but had very little effect on Coke stocks. Aurora had a 16% move, a huge, huge jump, and overall the index was up about 4-5% almost entirely on that.
“Aurora is certainly one of the bigger players but a 16% move only put them up 4% for the year. The index is up 23% so there are a couple of bigger players like Canopy really, really dominating the markets while some of the smaller players aren’t keeping up with what was happening a year ago.”
Currie highlighted reports that the CBD market is now predicted to reach $2 billion but said investors had to weigh up the fact these are not "pie-in-the-sky" firms with the reality that none of them have posted quarterly earnings yet. Recreational marijuana will become legal on October 17.
He said: “Whatever we are recommending you have to look at the fundamentals and there are always rumours and hype but at the end of the day you have a company with no earnings, a PE ratio of zero and a dividend of nothing.
“With that being said, Canopy has got a $14 billion market cap and large companies around the word want to deal with them so it’s also unreasonable to say these are just pie-in-the-sky ventures; they’ve really got something behind them and we have a month to go.
“The excitement will continue at least until October 17 but then after that we’re going to see quarterly earnings come in for these companies when they actually start selling and I think that’s when you’re actually going to separate the wheat from the chaff and the real serious players from some of the minor leagues.”
