In case you aren’t aware of it already, let me be the first to tell you: There’s a battle brewing over marijuana north of the U.S. border, and the winning prize may be billions of dollars in revenue. Canada already has a well-established national medical-marijuana marketplace producing hundreds of millions of dollars in revenue for marijuana companies. But the real money will come from the country’s recently opened recreational-use market, which the professional services firm Deloitte pegs to be worth as much as $4 billion Canadian in 2019.
With that much money up for grabs, it’s little wonder many companies are racing to secure a lead in this market, but only about a half dozen of these companies are arguably best positioned for a shot at victory. Of them, two that ought to be on your radar are Aurora Cannabis (NYSE:ACB)and Cronos Group (NASDAQ:CRON), because both are delivering breakneck sales growth. Is one a better buy than the other?
Sizing up sales
There’s no denying Aurora Cannabis is the bigger of these companies so far. Thanks to an aggressive mergers-and-acquisitions (M&A) strategy, Aurora Cannabis reported over 35 million Canadian dollars in sales last quarter, including revenue from recently completed acquisitions. Cronos Group reported only CA$3.8 million in sales last quarter.
However, the two companies are growing differently. Yes, pro forma sales for Aurora Cannabis grew a whopping 333% year over year last quarter, but that growth was mainly due to acquisitions of competitors, rather than increasing demand for its existing marijuana products. Roughly CA$18 million of Aurora’s CA$20 million year-over-year increase came courtesy of M&A deals. In contrast, Cronos Group’s sales increased 186% to CA$3.8 million last quarter, and most of that growth was organic, rather than from costly acquisitions.
Aurora Cannabis can’t be blamed for rushing to consolidate market share, so it has the scale to claim a big share of Canada’s emerging recreational market from the get-go, but doing so has significantly diluted shareholders and caused its losses to mount. Aurora Cannabis lost CA$105 million, or roughly three times its revenue, last quarter, while Cronos Group’s CA$7.2 million loss in the period was less than twice its sales.