Things haven't exactly gone as planned for marijuana stock investors. Following years of outperformance, pot stocks have predominantly face-planted since adult-use sales commenced in Canada in October 2018.

This underperformance has been particularly noticeable among Canadian marijuana stocks such as Aurora Cannabis (NYSE:ACB). Since mid-March of last year, the most popular pot stock has lost almost 85% of its value and around $7 billion in market cap.

An up-close view of a flowering cannabis plant in an indoor grow farm.

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Making matters worse, the company's recently reported fiscal second-quarter operating results were a mess -- albeit a largely expected mess following a corporate update about a week prior to releasing its Q2 2020 results. A number of one-time charges led Aurora Cannabis to book a net loss of 1.31 billion Canadian dollars (about $988 million U.S.), with the company's net sales plunging 26% from the sequential first quarter. This sales decline included CA$10.6 million in returns and price adjustments, which ultimately lowered gross revenue by 16%.

But among the many negatives Aurora reported in its latest fiscal quarter, there were still a handful of bright spots.

Three things that actually went right for Aurora Cannabis in Q2

Though this might sound counterintuitive, the first thing that went right for Aurora during the second quarter is that its wholesale cannabis revenue fell off a cliff. Aurora wound up tallying only CA$2.38 million in wholesale revenue, down 77% from the sequential first quarter.

How's this a good thing? Well, wholesale revenue is a relatively low-margin, easily oversupplied, and highly commoditized aspect of the cannabis industry. Aurora Cannabis' management team has been clear that it doesn't want to focus on selling marijuana at lower wholesale prices and intends to go full bore into the Canadian retail and medical markets. Considering that the average net selling price of wholesale cannabis also cratered 45% in Q2 2020 from the sequential quarter (CA$1.90/gram vs. CA$3.45/gram), it only cements how smart it is for Aurora to de-emphasize this revenue channel early.

Secondly, while Aurora Cannabis did see four out of five of its operating expenses rise during the fiscal second quarter, it's incredibly important that the one to have fallen was share-based compensation (CA$20 million in Q2 2020 vs. CA$24.8 million in Q1 2020).

An accountant chewing on a pencil while closely examining figures from his printing calculator.

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Putting aside the fact that Aurora has drowned its shareholders with common stock issuances for five years and counting, reducing share-based compensation in lieu of the company's awful operating performance demonstrates that management is starting to get it. And by "get it," I mean realize that tough cuts need to be made to reduce the company's operating losses and cash burn.

Lastly, we witnessed Aurora's management finally begin to come to terms with its much maligned balance sheet. More specifically, the company took a CA$762.2 million writedown against its goodwill, which is close to a quarter of the CA$3.17 billion in goodwill Aurora Cannabis was carrying on its balance sheet at the end of the sequential first quarter.

Aurora Cannabis has made more than a dozen acquisitions since Aug. 2016, and most of these deals look to have been grossly overpriced. In admitting defeat and writing off CA$762.2 million in goodwill, the company reduced its percentage of goodwill relative to total assets to 52% in Q2 2020 from 57% in Q1 2020.

Aurora is a still a marijuana stock to avoid

While it's important to note that even in Aurora Cannabis' worst report there were bright spots, there's no overlooking the fact that the negatives still continue to dwarf the positives. That makes this a pot stock you'll want to continue avoiding.

As an example, even though I've commended management for getting real about the state of the company's balance sheet, I'm still dumbfounded that much of the company's goodwill writedown originated from its assets in Denmark and South America. In my view, there's not an asset that's more blatantly overvalued on the company's balance sheet than its purchase of MedReleaf.

A pile of hundred-dollar bills on fire, with hundred-dollar bills being used as wallpaper in the background.

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Aurora's all-stock acquisition of MedReleaf was completed in July 2018 for a price of CA$2.64 billion. Of this CA$2.64 billion, a whopping CA$2 billion was classified as goodwill. The expectation had been that MedReleaf's brands, plus its 140,000 kilos of peak annual output, would easily allow Aurora to recoup the premium it paid. However, Aurora never developed the Exeter greenhouse, which was to be responsible for 105,000 kilos of the 140,000 kilos in projected peak annual output. In fact, Exeter is now for sale for a meager CA$17 million. Assuming Aurora gets its full asking price (which is no guarantee), this works out to CA$2.62 billion sunk into MedReleaf for a handful of unique brands and 35,000 kilos of annual output. There are publicly traded pot stocks with market caps of less than CA$100 million that are on track for 50,000 kilos of annual output.

Long story short, Aurora Cannabis grossly overpaid for MedReleaf, and there's a very good chance that future writedowns are coming -- especially with goodwill still accounting for 52% of total assets.

Financing also remains a very real concern. Even with the company announcing a number of changes to its debt covenants, it's unclear if it has enough capital to survive over the long run. Remember, this is a company that ended calendar 2019 with CA$156.3 million in cash and cash equivalents and CA$26.1 million in marketable securities. By comparison, the company estimates CA$373.6 million in contractual liabilities within the next 12 months and close to CA$1.3 billion worth of liabilities within the next five years.

The fact is that Aurora Cannabis was so hell-bent on being the leading global producer that it grossly overextended itself and its balance sheet. While bankruptcy may not be in the cards, continued struggles certainly look to be. This makes Aurora Cannabis a company that serious pot stock investors can easily ignore.