Pot is hot on Robinhood. Of the 100 most popular stocks on the trading platform, five of them are marijuana stocks. Thats not particularly surprising considering the growth potential for the global cannabis industry.
What might be surprising, though, is which pot stock is the favorite for Robinhood investors. Aurora Cannabis (NYSE: ACB) currently ranks No. 11 among Robinhoods 100 most popular stocks, beating all of its cannabis rivals. Why Aurora? Its complicated.
Part of the problem is dilution. Over the last three years, Auroras outstanding shares count has soared 238%. However, dilution is really just a symptom of Auroras real problem -- it continues to lose a boatload of money.
There are some straightforward reasons for the Canadian cannabis producers lack of profitability. Aurora faced and continues to face challenges in the Canadian market that arent under its control, notably including a limited retail infrastructure and the ongoing COVID-19 pandemic.
However, the company also spent money like it was going out of style. It gobbled up smaller companies left and right. It aggressively ramped up production capacity on a scale that dwarfed most of its rivals. Management also made some boneheaded mistakes along the way, such as failing to secure the necessary permit to market medical cannabis in Germany, a blunder that suspended Auroras sales in the key European market for a while.
Despite all this, Aurora is still more popular among Robinhood investors than any other marijuana stock. We cant know exactly whats inside these investors minds, but here are some guesses that could explain Auroras popularity.
First, Aurora has been widely followed in the U.S. for a long time. In 2018, rumors circulated that Coca-Cola was in discussions with the company about teaming up to develop cannabis-infused beverages. That partnership never materialized, but the publicity Aurora received was tremendous.
There could also be psychological factors at work. Confirmation bias causes individuals to look at information only in a way that confirms their existing beliefs. The sunk-cost effect manifests when people stick with an investment that has lost money because they dont want to admit failure. Some Robinhood investors who bought Aurora when the stock was performing well could be reluctant to let go.
Its also likely that some investors simply think Aurora now has no place to go but up. They could look at Auroras valuation, particularly in comparison to other leaders in the Canadian cannabis market such as Canopy Growth, and see the potential for a big rebound.