Aurora Cannabis – Is The One Time Industry Darling Finally In The Clear?

Last week, Aurora Cannabis Inc. (ACB.TO) (ACB) released second quarter financial results and the market responded negatively to the numbers. 

Following the earnings report, several leading Canadian and US broker-dealers responded with the following:

1. ATB Capital Markets raised its price target to $13 from $10.50 (CAD)
2. MKM Partners changed its rating to Sell from Hold 
3. Canaccord Genuity raised its price target to $14 from $11 (CAD)
4. Stifel raised its price target to $7.8 from $6.50 (CAD)

During the second quarter, Aurora Cannabis recorded a more than $290 million net loss on $70 million of revenue. The company reported an Adjusted EBITDA loss of $16.8 million and the amount included termination and restructuring costs. Most of the net loss is related to non-cash items and we will monitor how Aurora Cannabis’ numbers move from here. 

An important metric to highlight from the second quarter is the adjusted gross margin. During the quarter, Aurora Cannabis recorded a 6% decline in margins when compared to the same period last year. The decrease is the result of a reduction in production levels at Aurora Sky which caused there to be an increase in cash cost of sales due to the under-utilization of capacity at the facility. 

For the last year, Aurora Cannabis has talked a lot about rightsizing the operation and closing production facilities across the world. Clearly Aurora Cannabis’ rightsizing process is taking longer than expected and we look forward to the day the management team announces that they have completed the process.

In the near-term, we expect Aurora Cannabis to remain challenged and will monitor how it impacts the performance of the brand. The company recently announced a financing agreement and we believe the resources will be key for enhancing the company’s footprint in strategic markets (Canada, the US, the EU, and Latin America). 

As of February 10th,  Aurora Cannabis reported to have approximately $565 million of cash on hand. The company continues to focus on improving operational flexibility and expects this project to be a positive for cash flow. Of the four cultivation facilities that Aurora Cannabis plans to close, three are fully shuttered and we will monitor how the management team continues to execute on this.

During the last month Aurora Cannabis has seen its stock price surge higher and it is currently trading above the price target levels that were reported by broker-dealers (highlighted in the beginning of the story). Going forward, we are cautious with Aurora Cannabis and this is due to the volatility that is associated with the trend. 

If you are interested in learning more about Aurora Cannabis, please send an email to support@technical420.com with the subject “Aurora Cannabis” to be added to our distribution list.

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Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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