Cowen Out Bullish On Aurora Cannabis, Takes Neutral Stance On Cronos

A major research started coverage of cannabis companies Aurora Cannabis Inc. ACB and Cronos Group Inc. CRON Tuesday. 

The Analyst

Cowen Equity Research analyst Vivien Azer initiated coverage of Cronos Group with a Market Perform rating and CA$29 ($21.72) price target.

The firm initiated coverage of Aurora Cannabis with an Outperform rating and CA$14 ($10.49) price target. 

The Thesis

Aurora is already well-situated in the Canadian market, with a 20-percent market share in the country's adult use market, Azer said in the Tuesday initiation note.

This puts Aurora in a unique position to drive leadership in share and profitability, the analyst said. 

Aurora is well-positioned to benefit from Canada's burgeoning medical and adult use markets, which is estimated to reach $12 billion by 2025, Azer said. In addition to its long-term focus on growth in the Canadian and global medical cannabis markets, Cowen sees positive signs in Aurora's ability to ramp up production efficiency, she said. 

The analyst sees potential for Aurora to capture share in the international medical market, which is projected to be worth $31 billion by 2024. 

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With an efficient large-scale production network and near-term operating leverage, the company should be one of the first Canadian companies to reach profitability, Azer said. More so, with a positive EBITDA expected by the fourth quarter of 2019, Aurora is ahead of the industry on profitability curve, she said. 

On the other hand, 2019 will be an investment year for Cronos, and the company is not expected to become profitable in the near-term, the analyst said. 

While Cronos has an asset-light model and plans to transition to third-party supply over time, investments to expand the global reach of the brand are expected to prevent Cronos from achieving profitability in the short-term, Azer said. 

"We look for a more attractive entry point, assuming the existing business model remains intact." 

Price Action

Aurora's American-traded shares were up 7.34 percent at $7.75 at the time of publication Tuesday, while Cronos was up 3.59 percent at $22.23. 

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Photo courtesy of Aurora Cannabis.