No sector in the market has been safe for the past month, and the cannabis sector has especially been hit hard. As the COVID-19 crisis unfolds many investors are concerned about where the cannabis sector is heading next.
Before the whole crisis unfolded investors in Aurora Cannabis (NYSE: ACB) were concerned for many reasons; management, debt, and a clear path to revenue, just to name a few. These problems, many speculate, have compounded as capital gets harder to obtain, revenue is projected downwards, and investors flee to cash.
So does ACB have what it takes to weather this challenging economic environment?
The company is one of the worst-performing stocks in the cannabis sector, falling almost 93% in just 12 months. During their last quarterly earnings report the company missed guidance. And CCO Cam Battley, who is no longer with Aurora Cannabis, had predicted positive EBITDA in 2020. Instead, during their last quarter, the company reported an adjusted EBITDA loss of CA$11.7 million.
In addition, ACB has had diminishing sales numbers for the past two quarters. First to $75.2 million CAD and then again to $56 million CAD in the most recent quarter.
The reason investors were willing to pay such a high premium more than a year ago was that they anticipated cannabis companies to grow revenues dramatically. What happened instead was the total opposite.
Based on it’s share price, it’s clear that investors have not been happy about the numbers coming out of Aurora Cannabis and that’s a significant reason why the stock has fallen so dramatically.
Now on the topic of cash, in the second quarter ACB reported having cash and cash equivalents totaling CA$156.3 million. Over the past six months, the company has burned through roughly CA$229.6 million in operating expenses. So it’s not surprising that some analysts feel that ACB has just a few months left of liquidity before it runs out.
So with all of this bad news piled on for ACB, what can we look for if the company is to make an epic comeback?
First, the company needs to solidify a new CEO. They have told investors that it is on the hunt for a new full-time CEO but who knows how long that will take. There is speculation that a potential new CEO could have ties to Mondelez International, which might indicate some type of sale to the giant food and beverage company. This would be a positive for ACB.
There is also a rumor that the Alberta government is considering giving ACB funding in order to carry on with their operations and get them through these tough times, but that is yet to be announced as well.
There is just too much speculation and too many rumors about ACB at this point to give investors any sort of real confidence that the company will
definitively survive the economic storm we are currently in.
So at this point, all we can do is remain hopeful.
(Disclosure: The author is long on ACB)
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ACB shares were trading at $0.75 per share on Wednesday afternoon, up $0.03 (+4.25%). Year-to-date, ACB has declined -65.28%, versus a -23.13% 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...
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