The marijuana industry is expected to see up to $75 billion in global (legal) sales by 2030, and it has dozens upon dozens of pot stocks for investors to choose from. But when it comes to popularity, no marijuana stock is more actively held by investors than Aurora Cannabis (NYSE:ACB).

Investors love pot stocks, and Aurora is at the top of their list

Aurora Cannabis projects as the largest Canadian marijuana producer by peak output. Already yielding more than 150,000 kilos on an annual run-rate basis at the end of March, the company is targeting at least 625,000 kilos per year of run-rate production by the midpoint of 2020 (which would be the end of its fiscal year in 2020). With the exception of Canopy Growth, and now Flowr Corp. following the announcement of a major acquisition in Portugal, no other growers are within a stone's throw of Aurora's peak yearly output.

No growers can hold a candle to Aurora's international push, either. This is a company with a cultivation, processing, export, or research presence in 24 countries around the world, including Canada. With the exception of Canopy Growth, few other cannabis stocks have the international appeal that Aurora possesses. These external sales channels should prove their worth in a few years' time, when dried cannabis flower becomes oversupplied in Canada.

Investors also seem to appreciate Aurora's stated focus on medical marijuana patients. Although this is a smaller consumer pool than adult-use cannabis, medical pot patients use the product more frequently, buy cannabis more often, and are far more willing to purchase higher margin derivatives (e.g., oils, edibles, concentrates, tinctures, infused beverages, topicals, vapes, and so on). In other words, focusing on medical marijuana patients is Aurora's means of bolstering its margins, in addition to recognizing economies of scale as its larger grow operations come on line.

Combine these catalysts, and we get the primary bull thesis for Aurora Cannabis.

Here's why Aurora's upside has been limited

Yet, take a closer look at the company's stock and you'll notice something disheartening: It hasn't delivered for shareholders over the past 18 months. Aurora's stock is up a meager 2% in that time, with a number of its peers running circles around it over the same period.

Aurora's underperformance is likely tied to three upside-limiting factors.

1. Share-based dilution

Although Aurora optimists absolutely loathe hearing about share-based dilution, it's easily one of the biggest reasons the company's stock has run in place for the past 18 months.

Since August 2016, Aurora Cannabis has made 15 acquisitions, nearly all of which have been paid for with the company's common stock. Between share issuances to raise capital for the construction of existing greenhouse projects, to acquisitions to bolster the company's production or international supply chain, issuing shares or selling convertible debentures have been Aurora's primary means of raising capital.

On the plus side, yes, adding new businesses or products does add value to the company. But that value is being spread out over a greater number of outstanding shares. In just the past 19 quarters (4 3/4 years), Aurora's outstanding share count has grown by roughly 1 billion. The company simply cannot issue 1 billion shares and not expect adverse consequences for its share price.

Management has made it evident that inorganic growth will play a big role in Aurora's future. And while that's not inherently bad, Wall Street will need to see a serious slowdown in share issuances and stock-based compensation if these adverse effects of dilution on the company's share price are to ease.

2. Goodwill

The second reason Aurora Cannabis is getting minimal love from big-money investors has to do with its acquisition-heavy strategy. Though these purchases have been instrumental in growing its capacity, diversifying its product portfolio, and expanding its international reach, the premiums it's paid for these deals have become an eyesore on the company's balance sheet.

As of the end of the fiscal third quarter (March 31, 2019), Aurora Cannabis recognized 3.18 billion Canadian dollars ($2.42 billion) in goodwill, which was up from about CA$3.06 billion in the sequential second quarter, and just CA$760 million in the prior-year quarter. Goodwill represents the amount Aurora has cumulatively paid above and beyond tangible assets for the companies it has acquired. While some amount of goodwill is to be expected, Aurora's CA$3.18 billion makes up 57.2% of its total assets.

Ideally, it is going to be able to quickly integrate and develop its acquired assets to begin recouping significant amounts of this premium paid, thereby reducing or eliminating the goodwill on its balance sheet. But a scenario that could be just as likely is Aurora being unable to recoup all of its goodwill and taking a substantial writedown. This would lead to a large one-time loss, and it would reduce the company's total assets and shareholder equity.

In short, until Aurora's goodwill is addressed, the stock could struggle to motor higher.

3. Health Canada's issues

Lastly, not every finger should be pointed at Aurora Cannabis and its management team. In some ways, the regulatory agency Health Canada has let the entire industry down. And since Aurora is currently the largest producer, it's been let down more than most other growers.

As of January 2019, Health Canada was contending with a backlog of licensing applications that reached nearly 840. Considering that it has approved fewer than 190 since 2013, this monstrous backlog has meant that even major growers have had to wait months, or even longer than a year, to get approval to plant, harvest, process, and sell cannabis. 

Health Canada's laundry list of regulations surrounding packaging and branding have also been a work in progress for marijuana middlemen. Since recreational marijuana was legalized in mid-October, there's been a persistent shortage of compliant packaging solutions throughout the country. This has left unfinished cannabis sitting on the sidelines.

Health Canada does have solutions it's implementing to help resolve the supply-side issues plaguing the Canadian weed market, but it's unlikely to happen with the flip of a switch.

So, yes, Aurora Cannabis offers plenty of potential. But it also has a handful of tangible reasons for its upside to be limited.