Earlier this week, Aurora Cannabis Inc. (ACB.TO) (ACB) released fourth quarter financial and operational results for the period that ended on June 30th. The market was not pleased with the results and the shares ended the day down more than 10%.
One of the most significant numbers that was reported in the fourth quarter by Aurora Cannabis was the $1.6 billion non-cash write-down of goodwill and intangible assets. During the quarter, the Canadian cannabis producer recorded a number of balance sheet adjustments to recognize market realities and position it for future performance.
Broker dealers have not responded well to the quarterly performance and several firms have lowered price targets on Aurora Cannabis. Piper Sandler lowered its price target to $8; Cowen and Company lowered its price target to $10 (CAD); and MKM Partners lowered its price target to $9 (CAD). We are not surprised by the amount of price target changes on Aurora Cannabis and expect this trend to continue in the near-term.
When compared to the third quarter, Aurora Cannabis recorded a 5% decrease in total revenue and a 9% decrease in total consumer cannabis revenue. The primary reason for the decrease was the 30% drop in the average net selling price per gram of consumer cannabis. The reason for the decline is due to an uptick in demand for the company’s value segment brand (went from being 35% of flower revenue in the third quarter to 62% in the fourth quarter).
Another negative that was reported is related to the amount of consumer cannabis extract net revenue that was generated in the quarter. When compared to the prior quarter, Aurora Cannabis recorded a $1.5 million decrease in the amount of consumer cannabis extract revenue that can be attributed to the company losing market share for vaporizer products.
During the quarter, Aurora Cannabis reported a loss of $34.6 millions of Adjusted EBITDA. The management team expects the company to achieve positive Adjusted EBITDA in the second quarter of 2021 and this would represent a major development for the business. If Aurora Cannabis can execute on this task, we believe that it will show that the business is turning around under the new management team and will monitor how the story evolves from here.
After the quarter ended, Aurora Cannabis appointed Miguel Martin as Chief Executive Officer. Miguel has significant experience in consumer-packaged goods, highly regulated industries and the US cannabinoid industry. Time will tell if he is the right person for the job and the company believe that he is well-positioned to execute on the next phase of Aurora’s business transformation, with a focus on commercial strategy.
2020 has been a challenging year for Aurora Cannabis and we will be monitoring how the new CEO is able to navigate choppy waters and turn the operation around. Going forward, the name of the game for Aurora Cannabis is execution and the stakes are high. The company has not been able to raise capital like it once was and the balance sheet is substantially weaker than it was last year. Aurora Cannabis needs to execute on a cost efficient growth strategy and we will monitor how the story evolves from here.
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