Stock Market

Even If the U.S. Market Opens, It Probably Won’t Help Aurora Cannabis

As a shareholder of Aurora Cannabis (NYSE:ACB), I’m going to get this one out of the way. This was not one of my brightest ideas. In my mind, I’ve already resigned to the very real possibility that ACB stock will be a tax write-off for me. Still, if there’s any hope for the cannabis firm, it’s in the political realm.

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In recent years, Senate Majority Leader Chuck Schumer strongly pushed for marijuana legalization.

Obviously, he saw an opening when Joe Biden won the presidency in 2020, along with the Democrats controlling Congress (albeit by the slimmest of margins).

So, he must have been disappointed when President Biden insisted on taking a less controversial and moderate stance on weed.

Nevertheless, Schumer appears undeterred, making some of the strongest remarks yet regarding legalization. In a Politico interview, Schumer stated regarding Biden’s reticence that “I want to make my arguments to him, as many other advocates will.” But then he added, “But at some point, we’re going to move forward, period.”

On paper, I interpret this bold declaration as a net positive for ACB stock and the rest of the green industry. First, the Democrats probably have a small window of opportunity to push as many of their agendas as possible. Something tells me that pent-up anger could move the needle for Republicans.

Second, Schumer is basically reiterating what the public wants. As I’ve stated countless times in other InvestorPlace articles, two-thirds of Americans support marijuana legalization. I’m sure this figure has gone up since the novel coronavirus pandemic, in small part because we have so many other things to worry about.

Actually, according to the latest Pew Research Center report, fewer than 10% of U.S. adults say marijuana should not be legal at all. It’s not quite the same thing as above but still, it’s news that stakeholders in ACB stock will take.

But is it enough to change the longer-term narrative? I have my doubts.

Politics Could Also Be a Headwind for ACB Stock

The political angle for ACB stock and other cannabis-based investments is both intriguing and complex. Of course, you must have a favorable legal environment for botanical companies to flourish. But making it too favorable is beneficial for the consumer, not necessarily for the business competitor.

Not that I would know or anything (because I absolutely do not), growing cannabis isn’t exactly the most difficult endeavor. According to Canadian current affairs magazine Maclean’s:

Growing cannabis at home isn’t rocket science. Since cannabis is a “weed,” it requires little attention—rule of thumb is to avoid overwatering and over-fertilizing—although some basic conditions must be met if you want to obtain a product of decent quality.

If that’s the case, the main difficulty in growing cannabis has been the fear of law enforcement busting your operation. Without that dark shadow, anyone with the proper facilities and licenses can participate in the cannabis narrative. But that also opens the door to intense competition and commoditization.

Interestingly, though, a (pre-pandemic) survey by Civilized revealed that “More than half of the [cannabis] consumers polled had an annual household income of $75,000 or more, versus 44 percent at this level for non-users.” Certainly, this defies stereotypes of cannabis users as lazy, drugged-out individuals.

However, a large number of cannabis users don’t have such lofty income, which means they will be price sensitive. As well, a good chunk of folks making good money have been disrupted due to the public health crisis. Therefore, Americans generally are more price-sensitive these days.

Yes, I know about the crazy real estate pricing but also consider the personal saving rate. It’s at multi-decade highs, which indicates that people on average are saving money, not spending it. This translates to many, perhaps most cannabis users focusing on price rather than quality. That wouldn’t be helpful for ACB stock.

Don’t Follow My Lead

You might think it strange that someone who owns ACB stock is pessimistic about it. I don’t know what to tell you – we’re living in strange times. This isn’t the oddest thing you’ve encountered, I’d bet my money on that!

As I said in the beginning, I’m already treating this like a tax write-off in my head. Nevertheless, I might hold onto it for a while longer to see if it doesn’t get bought out. At this point, that might be the only upside potential in this story.

Because, as my InvestorPlace colleagues who specialize in technical analysis might say, the ACB chart looks ugly. Between January and March of this year, ACB stock might have printed a bearish head-and-shoulders pattern. That would imply the current negativity is just a follow-through of this pattern.

My blunt take is that you don’t need to follow me in this direction. I made a mistake on this one. It doesn’t mean you should too.

On the date of publication, Josh Enomoto held a long position in ACB.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.