Why Aurora Cannabis and Other Marijuana Stocks Just Popped

What happened

Investors in marijuana stocks such as Aurora Cannabis (ACB 7.68%), Tilray (TLRY -3.65%), and Curaleaf (CURLF -0.99%) are having a good day today — their first after four days of nonstop selling for some of these stocks. Through 12:12 p.m. ET on Wednesday, shares of Curaleaf are gaining 1.3%, and Aurora Cannabis is up 2.6%, while Tilray stock is leading the whole sector higher with a big 6% gain.

The growing popularity of medical marijuana apparently is behind it all.

So what

The effort to legalize marijuana at the national level ran into some roadblocks in 2022, and the drug is fully legal today in only 24 states and territories, according to the latest data from marijuana legalization advocate NORML. At the same time, however, 42 states and territories allow medical marijuana.    

The precise date for full-scale legalization at the federal level remains uncertain, but it does seem inevitable given its widespread support. And in the meantime, pot investors got some good news yesterday on the medical marijuana front.

It came in a study published by the Journal of the American Medical Association (JAMA) of 1,724 adults 18 and older in 36 states and the District of Columbia in early 2022. The study showed that 3 out of 10 patients suffering from chronic pain have switched (either entirely or in part) from opioids to marijuana. The study also found that more than half of such patients have begun substituting medical marijuana for either opioids or nonprescription painkillers.  

Now what

Related studies indicate that medical marijuana’s availability is also leading to a significant decrease in the issuance of opioid painkiller prescriptions among cancer patients. And according to a report yesterday from marijuana news source Marijuana Moment, other studies show declines totaling billions of dollars in opioid sales for drugmakers in states with legal medical marijuana.

So medical marijuana appears to be stealing market share from big pharma. But what’s bad news for pharmaceutical stocks isn’t necessarily great news — yet — for marijuana stocks.

Neither Aurora Cannabis, Tilray, nor Curaleaf have earned any profit in the past five years, and none of them has ever generated any positive free cash flow. But hope springs eternal.

According to analysts polled by S&P Global Market Intelligence, 2023 could be the first year Curaleaf generates at least a pro forma profit ($0.06 per share, say the analysts), and Aurora Cannabis could potentially turn in an actual profit in 2025, as calculated according to generally accepted accounting principles (GAAP).

The way things are going, say the analysts, Tilray could be both pro forma profitable and generate a GAAP profit in 2026, even absent federal legalization.

Despite racking up big losses over the past year, investors still seem to be optimistic that if they wait long enough, these investments will pay off eventually. The question is: How many investors have the patience to keep enduring losses while they wait for that day to arrive?

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.