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It's been a great year for Aurora Cannabis (NYSE: ACB) and Scotts Miracle-Gro Company (NYSE: SMG) so far. Both stocks are up more than 50% year to date.
How the stocks achieved those gains have been quite different, though. Aurora's share price doubled by mid-March before falling back down to earth a bit. Scotts, meanwhile, rose relatively steadily throughout the year.
Which stock is the better pick for long-term investors? Here are the top arguments for both Aurora and Scotts Miracle-Gro.
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The case for Aurora Cannabis
Any discussion about the merits of investing in Aurora Cannabis has to include the company's industry-leading capacity. Aurora currently can grow around 150,000 kilograms of cannabis on an annualized basis. It expects to increase annual production capacity to more than 625,000 kilograms by the end of 2020.
There are two main reasons why Aurora's tremendous production capacity is important. First, the company can sell all it produces right now. The more supply, the more money it makes. Second, Aurora's high capacity from its advanced growing facilities gives the company economies of scale that help it lower costs, thereby improving margins.
Aurora has plenty of outlets for selling the cannabis that it produces. The company claims the second-highest market share in the Canadian adult-use recreational cannabis market. It's a major player in the country's medical cannabis market. And Aurora ranks as the leader in international medical cannabis markets, the most important of which is Germany, where the company has the highest market share.
The company is well positioned to serve the fast-growing global hemp market. Aurora's acquisitions of HempCo, AgroPro, Borela, and ICC Labs give it an unmatched scope of operations in producing and processing hemp products.
While some of its peers have chosen to sell significant stakes to big partners outside of the cannabis industry, Aurora has taken a different path. It brought billionaire investor Nelson Peltz on board as a strategic advisor to help facilitate partnerships with multiple companies in industries including consumer packaged goods and beverages with the goal to not fork over big equity positions. This could pay off for Aurora over the long run as the global cannabis industry expands.
Speaking of that global cannabis industry, Aurora thinks that the total potential market could top $200 billion annually over the long run. Most of this opportunity lies outside of Canada.
The case for Scotts Miracle-Gro
Scotts Miracle-Gro set out a few years ago to become the leader in supplying key products needed by the cannabis industry, including hydroponics, lighting systems, and ventilation systems. It achieved that goal thanks to a string of acquisitions that dramatically increased the size of the company's Hawthorne Gardening subsidiary.