Please ensure Javascript is enabled for purposes of website accessibility

Why Aurora Cannabis Fell 20.7% in September

By Billy Duberstein - Oct 4, 2019 at 11:33AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Aurora Cannabis had a decent quarter, but it didn’t live up to the hype.

What happened

Aurora Cannabis (ACB -9.09%) saw its stock fall 20.7% in the month of September, according to data from S&P Global Market Intelligence. The world's leading producer of cannabis sold off after a tough month for pot stocks and unprofitable growth stocks in general. In addition, Aurora released a fiscal fourth-quarter earnings report that didn't quite match the market's lofty expectations.

So what

In its fiscal fourth quarter, Aurora reported revenue of $99 million and an adjusted EBITDA loss of $11.7 million. Those figures disappointed analysts, as Aurora had forecast $100 million to $107 million just a few weeks prior when the quarter ended. Aurora had also given itself a target to become adjusted EBITDA-positive by the end of the fiscal year, and as you can see, it missed that goal as well.

A woman holds a jar of cannabis in her hand.

Aurora Cannabis missed revenue expectations. Image source: Getty Images.

Aurora management gave a pretty decent explanation of the shortfall -- the company actually met the high end of its cannabis sales guidance of $95 million, but the company's noncannabis revenue, encompassing patient counseling, analytic testing, and construction engineering services, came in lighter than expected. Noncannabis revenue can be a bit inconsistent, and since it's not a core business, management should probably get a pass. Nevertheless, missing your targets, especially in a new and evolving industry such as cannabis, isn't going to do any favors for your credibility with Wall Street, and Aurora's stock was punished.

Now what

All Canadian cannabis companies are dealing with some oversupply in the market due to a delay in approvals for Canadian brick-and-mortar licenses and cultivation licenses. This bottleneck explains why several Canadian companies have disappointed investors this summer. Eventually, however, that will change as more licenses get approved.

Canada is also set to move forward with "Legalization 2.0" in mid-December. That milestone will allow retail outlets to sell derivative products such as edibles, vapes, infused beverages, and other products derived from cannabis, and not just the dried flower that was legalized last year. Aurora is currently making these products in preparation for the launch.

All things considered, Aurora still delivered a solid quarter, and it's still closer to profitability than its other Canadian large-scale peers. Moreover, Aurora's track record of flawless execution -- the company's never had a crop loss -- as well as its status as the largest and lowest-cost cannabis producer, should put it in good stead as the Canadian market moves forward.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Aurora Cannabis Stock Quote
Aurora Cannabis
ACB
$1.50 (-9.09%) $0.15

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
379%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.