Analysts across Wall Street are lauding the advisory partnership Aurora Cannabis (ACB) has struck with activist-investing legend Nelson Peltz.
The Canadian cannabis stock lit up in Wednesday's trading, riding the smoking hot stock action to become the world's second most valuable cannabis company behind Canopy Growth Corp. (CGC) , after the advisory announcement.
While the thoughts of many investors quickly turned to consumer packaged goods, the management prowess of Peltz's Trian Fund is also a promising value-add to the deal.
"An important focus of Peltz's historically has been on efficient asset allocation. We believe this strategic insight will be extremely beneficial to Aurora over the coming years," GMP Securities analyst Martin Landry said. "Some investor pushback on Aurora's investment case is they have spent large amounts on numerous assets across the value chain, with perhaps little thought to which are best suited. Peltz should support in ensuring assets are kept that yield most value."
Seizing on Existing Strengths
Some of the promise that investors will look to seize upon is clearly some of the same that Peltz examined before agreeing to advise.
"ACB is well positioned to benefit in the early innings of the Canadian adult use market, given its impressive 20% market share to date and #2 position by in-stock (stock keeping units), based on our analysis," Cowen analyst Vivien Azer wrote last week, bestowing top-pick status on the pot stock.
"The company's large cultivation footprint, capable of producing over 575,000 kg, provides ACB with the necessary infrastructure to weather early storms in adult use while continuing to grow higher-value revenues in the medical market," she added.
Further, the company has expanded its sales footprint internationally, most recently extending sales to Germany and Portugal.
The key will be Peltz's perspective on expanding profitability and sustainably.
Further, Peltz should be able to manage the company's aggressive acquisition strategy and curb investor pushback over a seemingly scattershot strategy to increase supply.
Patience Pays Off
One of the criticisms that has hit the Canadian cannabis company over the past year is its inability to garner a large investment from an alcohol, tobacco, or consumer packaged goods (CPG) company, leaving it billions of dollars behind peers like Canopy Growth and Cronos Group (CRON) .
While Peltz does not guarantee a similar multi-billion partnership, the addition should pacify that persistent critique.
"ACB has thus far remained independent and is bringing on an advisor to help plan out its next phase of growth," Azer commented on Wednesday. "Peltz brings a network of relationships with large potential strategic companies that ACB could partner with across medical and consumer applications. In addition, we think ACB will be more patient in partnership selection than its peers, particularly regarding equity investment."
In her view, the patience should allow Aurora to find the best possible partner in an industry where consolidation is likely inevitable.
With the opportunity available and a capable advisor behind the wheel now, some patience may be advisable for investors as well, even if the stock's run cools down in coming days.
For more on just how patient to be, Stephen "Sarge" Guilfoyle outlined his price target for the stock that he holds alongside Tematica Research CIO Chris Versace for the Stocks Under $10 portfolio.
Aurora Cannabis is a holding in TheStreet's Stocks Under $10 portfolio. Click here to learn more about this portfolio, trading ideas and market commentary product.
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