In recent weeks, Wall Street analysts have lowered their expectations of Aurora Cannabis (ACB). Last Friday, another analyst, this one from MKM Partners, rated ACB a “sell,” confirming what many investors had already been thinking.
Anyone who’s been following cannabis stocks this year knows that the sector as a whole is down 40% from its highs in April. But some companies are navigating the downturn better than others. Aurora is still an unprofitable company with more than a billion shares outstanding and a market capitalization upwards of $5 billion.
The company’s problems began compounding a couple weeks ago with the release of weaker-than-expected fiscal Q4 results. Aurora’s positive adjusted EBITDA for the June quarter was significantly shorter than ACB had predicted.
ACB generated an adjusted EBITDA loss of C$11.7 million in the last quarter, and also fell short of its C$100.0 million revenue target, scraping in at C$98.9 million.
Another thing that concerns investors is how the ACB management team sets key performance indicators. For example, one could argue that the company’s 10% increase in medical revenue was far weaker than expected.
And out of all the major cannabis players, Aurora has possibly made the most aggressive international push to scale (with inroads in approximately 25 countries), but still only managed to increase international revenue by 12% during the last quarter, pulling in a tepid C$4.4 million.
This suggests that Aurora is playing the long game, even though some investors may want quicker results.
Another red indicator is that the average net price per gram is down 17% to C$5.32, and Aurora already unloaded C$20 million worth of revenue on the wholesale bulk market at C$3.61 per gram.
Aurora grew net revenues by 52% in the last quarter, but gross margins only grew to 58%. The company also produced of 29,034 kgs in the last quarter, but when margins are slim, quantity doesn’t amount to as much.
Where Aurora goes from here
On the most recent earnings call, Chief Corporate Officer Cam Battley said: “What I do expect is within a very short period of time we’ll be entering into the U.S. with another point of entry, and a significant one. We’re also looking at stuff that may be more complicated and may require for us to be clever along the lines of what Canopy did.”
It’s clear that ACB has its sights set on the U.S. market, so perhaps we can expect an outside-of-the-box arrangement from the company similar to what Canopy Growth did with Acreage Holdings.
Nonetheless, investors seem shaken that Aurora spent $414 million on capital expenditures last year, while still generating a negative EBITDA. While the company still maintains an aggressive outlook on the international market, it now contends with a relatively weak balance sheet with only $362 million in cash (with $46 million of that restricted, leaving only $316 million to continue investing).
Shares or ACB are currently trading at $4.66 per share, near their all-time low from last December around $4.50. Keep a lookout for ACB’s Annual General Meeting of shareholders on Friday, November 8th, 2019.
ACB shares were trading at $4.66 per share on Wednesday morning, down $0.10 (-2.10%). Year-to-date, ACB has declined -6.05%, versus a 20.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Eric Bowler
Eric is an accomplished journalist providing in-depth insights for more than two decades, with a special focus on the cannabis industry. Learn more about Eric’s background, along with links to his most recent articles. More...
