Why Aurora Cannabis Just Fell Over 6%
May 14 2021 - 11:30AM
Finscreener.org
Marijuana giant Aurora
Cannabis (NYSE: ACB)
reported its fiscal third quarter of 2021 results yesterday. As
investors were left unimpressed with its quarterly results, ACB
stock is down over 6.5% in early market trading on May
14.
In Q3, Aurora Cannabis sales were down 19.5%
year over year and 17% on a sequential basis at CA$55.2 million.
After accounting for returns and provisions, cannabis net revenue
was down 20.8% compared with the prior-year period.
The company attributed this fall in the
top-line to a shift in mix towards its medical marijuana business.
Aurora Cannabis’ net selling price per gram of dried cannabis rose
to CA$5 per gram, up from CA$4.64 in Q3 of 2020 and CA$4.45 in Q2
of 2021.
Its adjusted gross margin before fair value
adjustments on cannabis net revenue was 44% compared to 43% in Q3
of 2020. The increase in gross margin was also due to the shift in
revenue mix as medical marijuana products derive higher profit
margins.
Aurora Cannabis
reported an adjusted EBITDA loss of CA$24 million in the March
quarter, significantly lower than its EBITDA loss of CA$49.6
million in Q3 of 2020. The EBITDA margin improvement was on the
back of lower operating and R&D expenses. Analysts tracking
the stock, expected sales to touch CA$68.8 million in Q3 while
EBITDA loss was forecast at CA$10 million.
We can see the company’s massive revenue and
EBITDA miss has led to the sell-off in ACB stock.
Aurora Cannabis continues to dilute
shareholder wealth
Aurora Cannabis has been one of the
worst-performing pot stocks in the last two years. ACB stock is now
trading 95% below its record high, wiping off massive investor
wealth. After accounting for its reverse stock split, Aurora
Cannabis increased its outstanding share count from 1.3 million in
June 2014 to 198 million in March 2021. This has resulted in
significant shareholder dilution.
The company intends to file a prospectus in
order to raise another $300 million in the future. It ended Q3 with
CA$520 million in cash and Aurora’s management explained the
proceeds of the equity raise will be used for acquisitions and
expand operations in the U.S.
Aurora Cannabis initially forecast to post a
positive adjusted EBITDA in the first quarter of fiscal 2021.
However, two quarters later it continues to grapple with negative
profit margins. During the earnings call, Aurora said its cost
structure transformation remains a top priority and the company has
identified between CA$60 million and CA$80 million in annual cost
savings that can be achieved in the next 18 months.
Aurora claimed, “We anticipate that this
initiative will not only allow us to meet our financial objectives
while the Canadian adult-use market normalizes over the next
several quarters, but will not have any effect on future revenue
growth.”
What is next for
investors?
Even if Aurora Cannabis manages to turn
profitable on an adjusted basis it will be due to cost savings
rather than revenue growth or via operating leverage. The company
is losing share in an expanding market and its international sales
are close to negligible.
ACB is now looking to focus on the medical
marijuana business which means investors should brace for more
decline in sales going forward. Aurora Cannabis accounts for around
20% of the medical marijuana market and aims to gain traction
here.
While most
cannabis companies will be impacted by the ongoing pandemic,
investors should also note that the competition in the Canadian
marijuana market has increased at a rapid pace.
In case marijuana is legalized in the U.S.
Canadian cannabis producers might be able to access a much larger
market. However, there are several multi-state operators in the
U.S. that are already profitable and are growing revenue at an
enviable pace.
Aurora Cannabis stock is currently valued at
a market cap of CA$1.63 billion. Analysts expect the company
to increase revenue by a measly 2.4% to CA$285 million in 2021
and by 38% to CA$395 million in 2022. However, they also expect
Aurora to post a loss of CA$2.13 per share in 2021 and CA$0.65 per
share in 2022.
Given ACB has 198 million shares outstanding
total losses for 2021 are forecast at CA$422 million in 2021 and
CA$128 million in 2022.
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