Since Canada began allowing recreational marijuana sales last October, Aurora Cannabis (NYSE:ACB) stock has fallen around 44% thanks to underwhelming sales and heavy operating losses. Recently released revenue results for the period ended June 30, 2019, disappointed analysts that were expecting more, but investors shouldn't give hope just yet. 

Despite missing some lofty revenue expectations, there were signs of positive cash flows ahead. These are the top four that investors should know about.

1. Narrowing losses

Aurora Cannabis is still losing money, but it took a significant step in the right direction during the company's fiscal fourth quarter, which ended on June 30, 2019. If revenues and expenses recorded during the last three months of fiscal 2019 stays glued in place for all of fiscal 2020, shareholders won't have a lot to complain about.

Line Item Fiscal Year Ended June 30, 2019 Fiscal Q4 Annualized  Projected Increase (Decrease)
Net revenue CA$248 million CA$395 million 68%
Gross profit (before FV Adj.) CA$135 million CA$220 million 63%
SG&A expenses CA$272 million CA$292 million 7%
Operating expenses CA$474 million CA$444 million (6%)

Data source: Aurora Cannabis. Q4 = fourth quarter; FV Adj. = fair value adjustments; SG&A = sales, general and administration. 

During the past year, Aurora's operating expenses exceeded the gross profit available to meet those expenses by CA$339 million, which just isn't sustainable. Simply repeating results of the latest three month period without any growth in fiscal 2020 would lead to a CA$49 million operating loss, which is a lot easier to swallow than previous losses.

Pot plants growing out of progressively taller stacks of coins.

Image source: Getty Images.

2. Economies of scale

It looks like a lot more topline revenue will end up hitting the bottom line in the quarters ahead. The cash cost to produce a gram of cannabis fell to just CA$1.14 from CA$1.42 during the previous three-month period.

New contributions from two of Aurora's gigantic automated production facilities came into the picture earlier this year and the difference is enormous. The two facilities raised the company's overall production capacity ninefold to 150,000 kilograms annually.  

3. Pricing is better than it looks

Aurora's average selling price fell by CA$1.08 per gram to CA$5.32 per gram in the fiscal fourth quarter, but that's largely because of a huge uptick in wholesale bulk cannabis sales from CA$2.1 million in the first three months of 2019 to CA$20.1 million during the quarter ended June 30, 2019.

Aurora recorded an average selling price of CA$3.61 for bulk cannabis, $5.14 for consumer cannabis, and CA$8.51 for medical cannabis. Despite the wide pricing range, the gross margin reported for bulk sales, 61% was actually better than the margins on consumer and medical sales.

Man in a suit using a magnifying glass.

Image source: Getty Images.

4. Never mind the consumer price decrease 

Consumer marijuana sales rose 52% from the previous quarter to $44.9 million, but it was dried flower sales that did most of the lifting. As a result, the average net selling price of products in the consumer segment fell by $0.34 compared to the previous quarter. 

Products extracted from marijuana flower are generally much more expensive than the flower itself, but they're also a lot more expensive to produce. That's why the gross margin on consumer cannabis revenue rose to 55% from 50% in the previous quarter despite a falling average sale price.

A good pot stock to buy now?

Aurora Cannabis and plenty of other marijuana stocks have tumbled recently, but now isn't the right time to start a long position. The company might be able to produce an operating profit in the quarters ahead, but that profit won't be large enough to support a $6 billion market cap in the foreseeable future.

During the six months between last December and this June, Statistics Canada recorded dried flower sales that rose 37% to an annualized 119,700 kilograms, and cannabis oil sales that rose 23% to an annualized 115,400 liters.

Remember, Aurora's already capable of producing 150,000 kg of dry flower per year, and it's not the only Canadian producer that can supply more flower than the entire country seems willing to buy. There are literally dozens of licensed producers fighting over a domestic market that simply isn't large enough to support Aurora's valuation. 

Perhaps the rollout of popular cannabis extracts and vape pens will pull some business away from an illicit market that's been providing popular extracts for years. Until there's proof these products won't simply cannibalize sales of less popular goods, though, it's better to watch this show from a safe distance.