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The 1 Number That Matters for the Hottest Marijuana Stock of 2018 (So Far)

By Keith Speights - Feb 9, 2018 at 6:04AM

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Aurora Cannabis just reported its latest quarterly results. Here's what you need to know.

It's been a busy few months for Aurora Cannabis (ACB 0.74%). Just how busy was made crystal clear when the Canadian marijuana grower reported its fiscal 2018 second-quarter results on Thursday. 

Aurora's quarterly update contained plenty of good news for investors to digest. But one number matters the most for the company's future. Here are the second-quarter highlights from what is -- for now, at least -- the hottest marijuana stock of 2018.  

Marijuana buds on top of small Canadian flags

Image source: Getty Images.

Growth, growth, and more growth

It's hard to find anything bad in Aurora's Q2 update. The company reported revenue of $11.7 million, more than triple the result from the prior-year period. It also represented a whopping 41.8% jump from the first quarter of fiscal 2018. Not only did Aurora have more patients, but its average selling price per gram also increased from $8.22 in the first quarter to $8.36 in the last quarter. (All amounts are in Canadian currency.)

Although most of Aurora's sales stemmed from providing medical marijuana to the Canadian market, the company also saw tremendous growth in Germany. Sales for its Pedanios subsidiary in the German market more than doubled from the previous sequential quarter to $2.5 million.

Aurora's gross profit increased 57% year over year to $6.5 million. The company went from a net loss in the year-ago period of $2.7 million, or $0.01 per share, to positive net income of $7.2 million, or $0.02 per share, in the second quarter.

There was one thing to note with Aurora's bottom-line results, though. The nice earnings swing stemmed in large part from an unrealized gain on derivatives of $22.8 million related to the exercise of warrants held in Radient Technologies.

The company also grew its cash stockpile, including cash and cash equivalents, from $159.8 million as of June 30, 2017, to $350.8 million at the end of 2017. This growth was achieved through bought deal financing transactions.

The number that matters most

While Aurora's Q2 results were impressive, the most important number of all won't be found on the company's income statement or its balance sheet. Instead, the one number that matters the most for Aurora was 240,000. That's the number of kilograms of cannabis the company will be able to produce on an annual basis with currently owned facilities.

Aurora's production capacity will increase even more once the acquisition of CanniMed Therapeutics (NASDAQOTH: CMMDF) is completed. CanniMed will bring another 7,000 kilograms per year of immediate capacity and 19,000 kilograms annually of funded capacity to Aurora. 

Keep in mind, however, that Aurora isn't able to grow nearly one-quarter of a million kilograms of cannabis annually just yet. The company plans to ramp up cultivation at its Aurora Sky and Aurora Vie facilities as well as fully complete the Aurora Sky and Lachute facilities in Alberta and Quebec.

Why is the number 240,000 so critical? Demand is expected to outstrip supply when Canada legalizes recreational marijuana. Aurora is barely able to keep up with growing enough cannabis for the medical marijuana markets in Canada and Germany now. Additional capacity will be essential for the company to capitalize on what should be an opening of the floodgates when recreational marijuana legalization takes effect.

Looking ahead

Obviously, the most significant thing to watch with Aurora is the progress of legalization efforts in Canada. Also high on the list is the pending acquisition of CanniMed.

In addition, Aurora has several initiatives in progress to expand capacity even more. The company is seeking to obtain a cultivation license in Germany to construct a new facility in the country. Its Aurora Nordic joint venture is retrofitting a 100,000-square-foot greenhouse in Denmark to cultivate cannabis. Aurora Nordic is also building a new 1 million-square-foot production facility that would add roughly 8,000 kilograms of annual capacity.

Investors should also keep their eyes out for more financing deals. In January, Aurora announced a bought deal financing transaction to raise $200 million. This transaction involved the issuance of 200,000 convertible debentures, which start off as a loan but can be later converted into stock. While generating cash to fund expansion makes sense at this stage, dilution can be problematic by reducing the value of existing shares. 

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