Aurora Cannabis (NYSE:ACB) made the mistake with its fiscal 2019 fourth-quarter results that lots of businesses do: It overpromised and underdelivered. The Canadian cannabis producer missed its own revenue guidance provided just a few weeks ago and didn't achieve positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) like the company had predicted earlier this year that it would do in Q4.
Investors' disappointment over Aurora's Q4 letdown will probably fade away soon enough. But there are still five big unanswered questions for the company that probably won't go away so quickly.
1. How much more dilution is on the way?
Aurora has taken the dilution solution to fund its growth more than any other Canadian cannabis producer. However, the growth at any cost perspective that many investors had in the earlier days of the cannabis industry has given way to a more sober view on the negative effects that issuing new shares causes.
Bank of America Merrill Lynch analyst Chris Carey asked executives on Aurora's Q4 conference call if the company would need to raise more capital going into 2020. Aurora CFO Glen Ibbott basically punted on the question, replying that the company "will cross that bridge when it becomes clear what the capital need is."
Although Aurora still has over 172 million in Canadian dollars in cash and cash equivalents, it continues to post huge net losses. The question for the company appears to be not if more dilution is coming but instead how much dilution is on the way.
2. When will Aurora actually achieve profitability?
That leads to the obvious follow-up question: When will Aurora achieve profitability? The company didn't hit its goal of positive adjusted EBITDA in the fourth quarter. Ibbott said in the Q4 call that Aurora would report positive adjusted EBITDA "in the short term, not the long term." He didn't say when that would happen, though, because Aurora continues to be dependent on the timing of the opening of retail locations to serve Canada's adult-use recreational cannabis market.
But positive adjusted EBITDA isn't the same thing as true profitability. Aurora Chief Corporate Officer Cam Battley stated in the Q4 call that the company is emphasizing a pathway to profitability more than some of its peers. However, it's still uncertain how long that pathway will take.
3. When will Aurora enter the U.S. market?
Battley took a few jabs at Canopy Growth, Aurora's top rival, during the Q4 call. There's one area, though, where Aurora is clearly trailing Canopy -- entering the U.S. market. And it remains somewhat murky as to when Aurora might expand into the United States.
Aurora CEO Terry Booth said the company is in discussions with potential partners about the U.S. market. Chairman Michael Singer chimed in that the U.S. hemp market is a top priority. But while Aurora's leaders continue to hint that a move into the U.S. market is coming soon, investors are still waiting.
4. How will vaping concerns affect Cannabis 2.0 sales?
Hundreds of vape-related illnesses, even including five deaths, have been reported in the United States. This has become such a serious issue that the Trump administration plans to ban flavored e-cigarettes, with individual states taking action or considering doing so as well.
Could these vaping concerns hurt sales in the coming Cannabis 2.0 market for cannabis derivative products in Canada? It's a huge question for Aurora, which continues to count on significant growth from vape-related products.
Battley said Aurora will closely monitor what happens in the U.S. However, he highlighted suspicions that the vape-related health issues in the U.S. were related to black market products, stressing that Aurora's vape products will fully comply with Health Canada regulations.
5. Will the big bet on massive capacity pay off?
Perhaps the biggest worry for investors in marijuana stocks is that there could be a supply glut on the way in Canada that drags down the entire industry. Despite these concerns, Aurora has moved forward with significant increases to its production capacity.
Battley stated in Aurora's Q4 call that he isn't sure when supply will catch up to demand in Canada. Aurora is betting that the global medical cannabis market will grow enough to more than offset any supply glut in its home country. According to Battley, Aurora thinks there will be many years of "a massive excess of demand oversupply" in the global cannabis market.
Currently, however, international cannabis sales account for only around 5% of Aurora's total net revenue. The global market will need to pick up momentum in a major way for Aurora's big bet on massive production capacity to pay off.