So far 2019 has been a crazy year for cannabis stocks. We saw peaks much higher than the broader indexes and months of painful declines. We are currently retesting December 2018 lows for most large-cap cannabis stocks and many investors are looking for the next catalyst to bring the market higher once again. Earnings season has been a mixed bag so far with Aphria coming out on top and Canopy recording one of their worst quarters to date. Trying to determine the trend towards profitability we would say that for the most part companies are still stuck between future investment opportunities, market share competition, international expansion efforts.
This quarter will be a crucial quarter for Aurora Cannabis as many investors have high hopes for the company. Aurora’s CCO Cam Battley has repeatedly mentioned that the company should have positive EBITDA by the end of 2019 and we will be keeping out for any indications as to how far along the company is towards those goals. Now let’s talk about revenues, analysts expect Aurora to post revenues of $112.7 million although in early August the company forecast Q4 revenue of C$100-C$107 million, but stated that they expect to have between 25,000 and 30,000 kgs of cannabis ready for sale which is in the upper range of analyst expectations. The market took this as a short term positive and then shares continued to decline.
During this quarter we will be looking for a few key metrics. First, we will be looking closely at revenue and guidance. If the company surprises on earnings and has a blowout quarter as Aphria did, there is a possibility that we could see a massive spike in the share price, as the market has been repressed for so long and we could be nearing a bottom for the sector. In this environment, investors are becoming more and more impatient and are focusing more on the short term as opposed to the long term.
Next, we will be looking at Aurora’s international efforts and how they are progressing. We are putting a high emphasis on Germany as Aphria pulled in close to 100 million from Germany last quarter and Aurora is one of only three companies to hold a license in Germany. If Aurora can substantially grow revenues from their international expansion efforts, Aurora could dramatically grow revenues as the company is one of the most globally diverse cannabis companies in the world.
There are many things to watch this quarter when it comes to Aurora Cannabis and their earnings, but one thing Aurora may have on their side this time is timing. The fact that Canopy, Aphria and some of the other large-cap cannabis companies have already reported earnings, now is Aurora Cannabis’s time to shine. The entire sector is looking for direction, and if Aurora can provide some optimism for the sector than we might be setting our self up for a big rally this fall. With that being said, negative earnings could drag the sector down to fresh lows for 2019. We remain cautiously optimistic with Aurora Cannabis as we feel that their international efforts should start to pay off, and the company’s solid management team will continue to get the job done. This quarter Aurora is in the spotlight, so get your popcorn and prepare for the show.
(Disclosure: The Author is long ACB)
ACB shares were trading at $5.59 per share on Wednesday afternoon, down $0.08 (-1.41%). Year-to-date, ACB has gained 12.70%, versus a 18.72% 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...