Which Is a Better Investment Right Now: Aurora Cannabis or IIPR

IIPR enjoys widening profit margins as well as strong revenue growth and is a better bet compared to the loss-making Aurora Cannabis.

Dec. 10, 2021

The cannabis sector continues to present investors with opportunities to derive multifold gains in the upcoming decade. A report from Verified Market Research estimates the global legal marijuana market to expand from $20.73 billion in 2020 to $111.3 billion in 2028, indicating a compound annual growth rate of 23.4% in this period.

Here, we look at two cannabis companies in Aurora Cannabis (NYSE: ACB) and Innovative Industrial Properties (NYSE: IIPR) to see which is a better stock at current prices.  

Innovative Industrial Properties: Bull vs. Bear arguments

A marijuana-focused real estate investment trust, IIPR is a quality growth stock valued at a market cap of $6.14 billion. IIPR stock went public in late 2016 and has since returned a staggering 1,240% to investors, easily crushing the broader markets. After adjusting for dividends, total returns are closer to 1,500%.

Marijuana is still illegal at the federal level in the U.S., making it difficult for cannabis producers to access traditional forms of capital and expand their production facilities. Here’s where IIPR come as it acquires properties from cannabis producers and leases it back to them via triple-net-lease agreements.

IIPR ended Q3 with 76 properties and its focus on acquisitions has allowed the company to increase sales from $6.4 million in 2017 to $116.9 million in 2020. In the last 12-months, its revenue has grown to $182.7 million and is forecast to touch $281 million in 2022. Its adjusted earnings are also forecast to grow from $3.27 per share in 2020 to $6.4 per share in 2022.

Driven by its stellar revenue growth and widening profit margins, IIPR stock is valued at a steep multiple. Its forward price to 2022 sales multiple stands at 22x and its price to earnings multiple is also high at 40x, making IIPR stock vulnerable in a sell-off.

Aurora Cannabis: Bull vs. Bear agreements

Aurora Cannabis has grossly underperformed the broader markets in the last three years. ACB stock is down 95% from all-time highs and might be viewed as a top contrarian bet.

Aurora Cannabis is one of the largest marijuana producers in Canada and has increased sales from $55 million in fiscal 2018 to $278.9 million in fiscal 2020 that ended in June. However, sales declined to $245 million in fiscal 2021 and are forecast to rise marginally this year.

Aurora Cannabis has diluted shareholder wealth at an accelerated pace as it raised equity capital multiple times in the past. Additionally, the company has also written-down goodwill on its balance sheet as it overpaid for acquisitions in the last few years. 

Aurora Cannabis has reported an operating loss of $239 million in the last four quarters despite several efforts to restructure its operations and reduce its cost base.

So, which stock is a better buy right now?

Its quite easy to pick a winner between IIPR and ACB. While IIPR is a market leader in the vertical where it operates, Aurora Cannabis is wrestling with weak fundamentals and a decline in market share. IIPR is well positioned to benefit from multiple secular tailwinds in the future, making it a top stock right now.