Why Aurora Cannabis Stock Is Slumping Today

© Provided by The Motley Fool Why Aurora Cannabis Stock Is Slumping Today

What happened

Canadian marijuana company Aurora Cannabis (NASDAQ: ACB) is having another bad day. The pot seller’s shares were down by a noteworthy 4.34% on moderate volume as of 2:05 p.m. ET on Monday.

Since the start of the year, Aurora’s stock has now shed 27.5% of its value, and the share price has fallen well below the Nasdaq’s $1 bid requirement, triggering a noncompliance notice from the exchange last month. 

So what

What’s behind this latest dip? Aurora’s stock appears to be responding negatively to the news that OPEC nations plan on reducing oil output by approximately 1.2 million barrels per day in May. In response to this news, the benchmark Brent crude spiked to almost $85 a barrel.

While Canada produces the bulk of its energy from hydro sources, elevated oil prices will still affect energy costs for the country’s cannabis producers. Most of these companies require enormous amounts of energy to cultivate their plants in high-tech indoor facilities.

Perhaps more importantly, though, higher oil prices will undoubtedly have negative downstream effects on discreationary spending by consumers, especially international tourists. That’s unwelcome news for companies like Aurora that derive a large portion of sales from discretionary recreational products. 

Now what

Is the stock a buy on this latest dip? Although Aurora has been leaning more heavily into the less economically sensitive medical marijuana category of late, it’s hard to see how the company can avoid a reverse split at this point. Pure-play growth stocks have been trending lower in this risk-averse market, and this simply doesn’t bode well for risk-laden cannabis stocks like Aurora.

As such, investors are probably best served by watching this story unfold from the safety of the sidelines. 

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George Budwell 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.