Aurora Cannabis: Setting the Tone for Marijuana Earnings

Small cap Aurora Cannabis (NYSE: ACB; TSX: ACB) reported earnings after the market closed yesterday and might be setting the tone for other cannabis stocks about to report earnings. Aurora Cannabis is one of three Canadian Cannabis companies reporting earnings this week with the others being Tilray Inc (NASDAQ: TLRY) who is scheduled to report fourth-quarter results today and Canopy Growth Corp (NYSE‎: CGC; TSX‎: WEED) who is scheduled to report Q3 results on Thursday.

Alberta (Canada) based small cap Aurora Cannabis would be one of the world’s largest and leading cannabis companies with a funded capacity in excess of 500,000 kg per annum and sales and operations in 23 countries across five continents. The Company is vertically integrated and horizontally diversified across every key segment of the value chain, from facility engineering and design to cannabis breeding and genetics research, cannabis and hemp production, derivatives, high value-add product development, home cultivation, wholesale and retail distribution. In addition to rapid organic growth, the Company has engaged in doing strategic M&A, which to date, includes 15 wholly owned subsidiary companies and investment in or strategic partnerships with a range of leading cannabis innovators.

Aurora Cannabis reported that Q2 net revenue was up 83% sequentially and up 363% to $54.2 million compared to the same period in 2018 thanks to the launch of the Canadian consumer market with sales of $21.6 million. Based on available data released by Health Canada for the Q2 2019 period, Aurora Cannabis accounted for approximately 20% of all consumer sales across the country.

However, average selling prices were impacted by the introduction of excise taxes across all Canadian sales channels on October 17, 2018 (the Company made this decision to absorb this cost rather than pass it on to medical patients), as well as lower wholesale pricing realized in the Canadian consumer market. Gross margin on cannabis sales shrank to 54% from 70% in the prior quarter and 63% in the year-ago quarter. The Company intends to continue prioritizing medical patients in Canada and globally where margins continue to exceed those achieved on the wholesale consumer market.

There were also losses of C$237.8 million versus a profit of C$7.7 million on sales of C$11.7 million a year ago. The losses were due to paper losses in other companies that Aurora Cannabis had invested in and not in core operations themselves.

The Company’s outlook noted:

The most significant driver of Aurora’s revenue growth over the next twelve to eighteen months is the Company’s scale-up of high-quality production available for sale to the Canadian consumer market and the Canadian and international medical markets. Aurora is now operating at an annualized production rate of approximately 120,000 kgs, based on Health Canada approved planted rooms, and expects to reach in excess of 150,000 kgs by March 31, 2019.  Management reiterates previous guidance that based on the Company’s current confirmed production results, Aurora will have approximately 25,000 kgs available for sale in Q4 (April to June 2019)… 

… Longer term, the Company expects that the launch of new higher value-added derivative product lines in relation to anticipated changes in Health Canada regulations, as well as the introduction of derivative products to international markets, will contribute to further revenue growth and margin expansion.

Note that the CFO commented in the earnings call (a transcript is available here):

As of December 31, we had $46.8 million in cash in equivalence subsequent to the quarter we closed US$ 345 million convertible note offering with number of high quality, US, European and Canadian institutional investors. 

The terms of the notes provide us with the optionality [ph] to potentially settle the balance which is maturity of five years in cash, shares or any combination thereof. With maturity following in the timeframe within which we believe we will be strongly cash flow positive. It provides us with the options and flexibility to limit future share issuances. Proceeds of the placements are earmarked predominantly to fuel corporate growth domestically and internationally.

A technical chart for Aurora Cannabis shows conflicting trend lines; but with share issuances out of the way, perhaps there will be less downward pressure for investors:

Leave a Reply

Your email address will not be published. Required fields are marked *