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Aurora Cannabis Sends a Mixed Message to Marijuana Investors

By Dan Caplinger - Updated Apr 18, 2019 at 12:02PM

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Despite solid growth in revenue, the cannabis company remains no closer to consistent profitability.

It hasn't taken long for Aurora Cannabis (ACB 4.28%) to become one of the budding giants of the marijuana industry. With its extensive growth capacity, its voracious appetite for acquisitions, and its name and brand awareness among consumers, Aurora consistently ranks among the top prospects for cannabis stocks.

Coming into Monday's fiscal second-quarter financial report, Aurora investors were looking forward to seeing substantial gains in revenue. Yet they weren't sure how those numbers would translate on the bottom line, and they wanted to see signs that Aurora is looking at ways to boost long-term profitability. Aurora's report was mixed on that front, and despite expected sales increases, there's still uncertainty about whether Aurora's future strategic direction will be the best for shareholders.

People at a conference booth with the Aurora logo on a sign behind them

Image source: Aurora Cannabis.

How Aurora moved forward

Aurora Cannabis' fiscal second-quarter results showed just how complex cannabis company financials are right now. Net revenue came in at 54.2 million Canadian dollars, which was up 83% from the fiscal first quarter and more than quadruple what the cannabis company had in sales in the year-earlier period. However, Aurora reported a monumental loss of CA$237.8 million, with mark-to-market adjustments for its derivative cannabis investments contributing about CA$190 million to the company's red ink.

Aurora had good news with its production capacity. The company said it produced more than 7,800 kilos of cannabis during the quarter, up 57% from three months ago and more than six times what it produced a year ago. Similarly, kilos sold rose to nearly 7,000, with the rollout of recreational cannabis in Canada contributing considerably to Aurora's distribution. Sales to the Canadian consumer market represented about 40% of Aurora's overall revenue for the period, with medical marijuana sales making up most of the remainder of the company's cannabis-related sales.

However, Aurora saw some pressures on the cost front. Average cash cost of dried cannabis jumped by nearly a third to CA$1.92 per gram, with the company citing higher expenses related to the ramp-up of the Aurora Sky facility in Edmonton and the regulatory costs connected to the launch of recreational cannabis throughout Canada. Aurora tried to reassure investors that this increase should be temporary, and cost savings should result from the optimization of new production facilities as they come fully online.

CEO Terry Booth was happy with the way the company performed during the period. "Aurora continues to execute strongly across all of its market segments," Booth said, and "our brands continue to resonate extremely well in the consumer market." The CEO also pointed to international market opportunities as well as the recent MedReleaf acquisition as key components of Aurora's long-term growth strategy.

Can Aurora shine brighter?

Aurora has high hopes for the future. As Booth puts it:

With our strong performance in the Canadian medical and consumer markets, our early mover advantage in a growing list of important international markets, together with our leadership in high-quality, CBD-rich hemp production, Aurora is strategically positioned across the entire cannabis industry value chain to further extend our rapid growth.

Aurora pointed to a large number of new supply agreements to expand its international scope. Exports to Poland, Luxembourg, Mexico, the U.K., and the Czech Republic were the latest in what is now an operation that touches almost two dozen countries worldwide. At the same time, acquisitions have played a key role, and further mergers both during and after the fiscal second quarter show Aurora's commitment to growing by all available means.

Yet some investors aren't entirely certain Aurora Cannabis is taking the optimal approach toward the industry. Unlike other major players like Canopy Growth and Cronos Group, Aurora has yet to make any major partnership or collaboration agreement with a large company in the consumer goods or healthcare space, and some fear the lack of support could put Aurora at a competitive disadvantage to its rivals.

Aurora shareholders didn't seem all that excited by the news, and the stock traded down as much as 5% in pre-market trading Tuesday following the late-Monday announcement. That's a minor move in the context of the big jump that Aurora shares enjoyed in January, but it'll be interesting to see whether the stock can regain its positive momentum once investors have a chance to digest the financial and business performance that the cannabis giant has achieved and assess its potential for future growth.

Check out the latest earnings call transcripts for companies we cover.

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