It's that time again, folks. Next week, Aurora Cannabis (NYSE:ACB), the most popular pot stock among millennials and a very polarizing stock as a whole, is slated to report its fiscal third-quarter earnings, which covers the period from Jan. 1, 2019, through March 31, 2019.
As the second-largest marijuana stock by market cap, and the company leading all growers in terms of current annual run-rate production and long-term peak annual output, all eyes will be on Aurora when it gives Wall Street and investors a look under the hood. Since Aurora is such a complex company, having made 15 acquisitions since August 2016, there's much more to its earnings report than meets the eye. With that being said, here are 10 figures you'd be wise to focus on in Aurora's fiscal third-quarter report.
1. Revenue (gross or net)
I know, "Thanks, Captain Obvious!" Although gross or net revenue (net revenue is simply gross cannabis sales less excise taxes paid) is something that every investor should be paying attention to with each and every pot stock they own or follow, it's of particular interest in Aurora's case, with Canada having so many supply chain issues. Cannabis store revenue has declined in two consecutive months (January & February) in our neighbor to the north, and when combined with a packaging shortage throughout the country, it could lead to significant lower-than-expected sales for Aurora Cannabis.
Wall Street currently pegs Aurora for 79.7 million Canadian dollars in gross revenue, but this is down from a consensus of more than CA$91 million just a few weeks ago.
2. Operating loss
Next, you'll want to de-emphasize Aurora's bottom-line loss or profit, as it's likely going to be influenced by a number of one-time benefits and expenses, such as the revaluing of its investments, or fair-value adjustments on its biological assets (i.e., cannabis plants). Instead, pay close attention to the company's operating loss to see if it's narrowed from the sequential second quarter. Aurora is in the midst of numerous capacity build-outs, and the company's operating results, sans one-time benefits and expenses, will give investors their truest look at the health of this company.
3. Recreational-to-medical sales ratio
In case you missed it, Aurora Cannabis left nothing to doubt during its second-quarter operating results press release, saying that it was going to focus its attention on medical marijuana patients rather than adult-use consumers. That's because medical patients use cannabis more often than adult-use consumers, and they're more willing to buy high-margin derivative products, such as oils.
During the second quarter, close to 55% of Aurora's revenue was derived from medical marijuana sales, even though recreational weed was legalized on Oct. 17, 2018, in Canada. What will be interesting to see is if this recreational-to-medical (45% to 55%) sales ratio has shifted notably during the fiscal third quarter.
4. Cannabis oil revenue as a percentage of sales
Somewhat building on the previous figure, pay close attention to the amount of revenue Aurora Cannabis is generating from oils. As noted, oils are a much higher margin product than traditional dried flower, and a focus on medical marijuana patients should, presumably, lead to higher derivative sales.
This number is also noteworthy given that Curaleaf Holdings Executive Chairman Boris Jordan noted on CNBC this past week that "over 50%" of all worldwide sales right now are of cannabis oils and oil-related products, not dried flower.
5. Average net selling price for dried flower and extracts
Next, you'll want to pay close attention to the average net sales price for dried flower and cannabis extracts. There was a pretty substantial dip in these average selling prices in the sequential second quarter for Aurora, primarily because of the inclusion of the excise tax into its results. The third quarter should provide a more apples-to-apples comparison. My expectation is that we'll see a slight uptick in both numbers as supply for dried flower and oils remains limited by capacity expansion ramp-ups, regulatory red tape, and packaging shortages.
6. Overseas sales
No marijuana stock has a more impressive overseas presence right now than Aurora Cannabis, with a distribution and/or production presence in 24 countries (including Canada). But in the second quarter, just a sliver of the company's revenue was being derived overseas. Part of this has to do with limited production capabilities as Aurora completes a slew of greenhouse projects. But this may also relate to Health Canada coercing growers to focus on domestic Canadian demand before exporting product to international markets. Either way, this is a figure to monitor.
7. Percent of Canadian marijuana sales
Although it's the only one of the 10 numbers here that isn't guaranteed to be in Aurora's third-quarter operating results, pay attention to whether or not the company discloses what percentage of all marijuana sold in Canada during the previous quarter it was responsible for. In its second-quarter operating results press release, the company noted that roughly 20% of all weed sold in the October-through-December period was its doing. It's unclear if Aurora will disclose this info again in the upcoming quarterly release.
8. Cash on hand
Considering that Aurora Cannabis is the only one of the three largest pot stocks by market cap not to have landed a major partnership, its cash position is worth closely monitoring. The company ended the fiscal second quarter with $123 million in cash, but completed a CA$345 million convertible offering in January. All told, this gave Aurora about $379 million in cash on hand, not counting the $750 million shelf offering that it announced was at its disposal in early April. Even though Aurora has been averse to using its cash to make acquisitions, it still needs plenty of capital to complete capacity expansion projects and cover branding and marketing expenses.
9. Outstanding shares
Speaking of using its common stock like Monopoly money, investors are encouraged to pay close attention to Aurora's latest outstanding share count, which should be north of 1 billion shares. Becoming the biggest producer in Canada has come with a price. Namely, the company has financed nearly all of its acquisitions by issuing shares of its common stock. With more than 1 billion shares outstanding, it's becoming increasingly harder for Aurora to deliver a meaningful per-share profit.
Lastly, take note of Aurora's goodwill on its balance sheet. At the end of the fiscal second quarter, Aurora was lugging around CA$3.06 billion in goodwill, which is essentially the aggregate "premium" it's paid for all of its acquisitions (through Dec. 31, 2018) above and beyond the tangible assets it received. This goodwill worked out to 63% of total assets, which is an exceptionally high figure and suggests that future writedowns are a real possibility. Ideally, investors would like to see goodwill, and its percentage of total assets, decline.
Now we simply watch and wait for Aurora Cannabis to deliver the goods.