ACB: Why are Shares of Aurora Cannabis Soaring Today?

Aurora Cannabis (ACB) posted its third-quarter earnings report yesterday, with revenues jumping 35% from their previous quarter. As a result, shares of ACB are trading up 67% today.

Some of the highlights from the report include net revenue of $78.4 million which excludes provisions of $2.9 million. This marks an increase of 18% over the prior quarter. Consumer cannabis net revenue jumped to $41.5 million, excluding provisions and marked a 24% increase over the prior quarter.

This revenue growth was due to the launch of their Daily Special brand of cannabis in February 2020 along with an increase in Cannabis 2.0 sales. Sales of their 2.0 products started near the end of December in 2019.

Cash cost to produce per gram of dried cannabis sold dropped to $0.85 which was down from $0.88 in Q2 2020. We like to see that ACB is maintaining a cash cost to produce per gram under $1.

Medical cannabis net revenue came in at $31.1 million, with Canadian medical net revenue up from $25.6 million to $27.0 million due to sales growth in cannabis derivative products. ACB also recognized international medical net revenues of $4.0 million up from $1.8 million due to sales from operations in the European Union coming back online in February of 2020. ACB received a temporary halt of distribution related to an administrative permit issue in Germany that was overlooked by management. This $5,000 permit cost them close to $2 million in revenue last quarter.

The company stated that its operational reset plan was on track to deliver the company’s commitment to positive adjusted EBITDA in Q1 of 2021. This should be possible if they continue to significantly improve their SG&A run rate and bring operating costs down further. ACB also improved their cash position to $230.2 million. ACB used $154.6 million in cash during Q3 which represents a 43% decrease over the prior quarter.

Michael Singer, Executive Chairman and Interim CEO of ACB, said, “I am incredibly proud of the Aurora team for working through these challenging times in order to maintain uninterrupted operations at all of our production facilities and ensure we continue to meet the needs of our patients and consumers. I am also pleased that our third quarter 2020 financial results were in-line with our expectations and that we remain firmly on track with the cost-savings and Capex goals we detailed during our business transformation plan in February 2020.”

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Overall we see ACB’s third-quarter results as a big step in the right direction. The market is clearly pleased with their result. But will these gains last? We have seen companies like OrganiGram have a positive quarter with shares jumping 40% only to sell off again as the bearishness persists. We are cautiously optimistic, and hope ACB can continue to deliver good numbers with costs coming down and stable revenue growth.

One wild card in the next few months for ACB will be if and when they announce a new CEO. There are hopes that the new CEO will have ties to a major consumer packaged goods company. Only time will tell whether ACB has what it takes to make a full recovery but this is one step in the right direction.

(Disclosure: The author is long ACB)

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ACB shares were trading at $11.12 per share on Friday afternoon, up $4.48 (+67.47%). Year-to-date, ACB has declined -57.10%, versus a -11.13% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaron Missere

Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...