The one way that struggling cannabis producer Aurora Cannabis (NYSE:ACB) can turn its fortunes around in a hurry is with a strong earnings report. But that may be easier said than done as there are many checkboxes that investors will want to tick off and review when Aurora releases its third-quarter results on May 14.

Here are six items that investors will want to keep an eye out for and assess before making an investment decision on the troubled pot stock:

1. Its cash balance

When Aurora released its second-quarter results on Feb. 13, it reported cash and cash equivalents totaling 156.3 million Canadian dollars as of Dec. 31, 2019. That was down from CA$172.7 million on June 30, 2019.

Cash is an important consideration for investors, especially with investment bank Ello Capital projecting that many cannabis companies only had a few months before they would run out of it. Aurora was supposedly among the worst cannabis companies, with just a few more months of liquidity left. Where its balance has gone during the past three months will definitely be a key consideration for investors, especially when evaluating the company from a risk standpoint. Without sufficient cash on hand to fund its operations, the company may issue more shares and experience more dilution as a result.

Jars of cannabis flower.

Image source: Getty Images.

2. How much cash it's burning through

In conjunction with its cash balance, investors will also want to see that the company isn't burning through lots of cash, either. Aurora could generate cash from selling off assets and helping keep the lights on that way, but that's not a sustainable approach to funding its operations That's why investors should take a close look at how much cash the company's burning through, especially from its operations. Cutting back on growth initiatives and capital spending is a lot easier than cutting back on day-to-day expenses that the company needs to keep operating and producing products.

Cash flow from operating activities is a key number that all cannabis investors should keep an eye out for when reviewing any earnings report since it includes spending that's essential to keep the business going. In Aurora's case, it's even more important given the concerns surrounding the company's liquidity.

3. Whether the COVID-19 pandemic helped or hurt its sales

What was surprising about Q2 for Aurora wasn't just that sales were down by 26% from the first quarter, but that the company was forecasting "modest to no growth" for Q3 as well. The strength of its sales will likely dictate whether or not the stock has a good day or not on earnings day. Growth has been a key reason for the popularity of pot stocks in recent years. The good news for Aurora investors is that the COVID-19 pandemic may have given the stock's sales a boost during the quarter.

In Canada, sales were surging in March amid the pandemic, with customers stockpiling pot. Some Ontario shops saw sales rise by 80% from previous weeks, and the Ontario Cannabis Store saw volumes rise by even more. If Aurora can't achieve better growth than it expected for this quarter, that could be a troubling sign for investors; the pandemic will likely make things worse as more people lose their jobs and may not be able to afford to buy cannabis. A poor showing in Q3 could set the stage for more disappointment later on this year.

4. If value brands are cutting into the company's gross margins

In February, investors learned that Aurora and other cannabis producers -- HEXO and Tilray -- would be launching value brands to compete with the black market. Called "Daily Special," Aurora's brand could help draw in more market share and give its sales a boost this quarter. However, it could come at the cost of lower gross margins. In Q2, Aurora netted 41% of revenue after cost of goods sold and before fair value adjustments to inventory. In the prior year, its gross margin was 52% of net sales.

A lower margin could negate any boost in sales. And at worst, if sales are down, it could lead to less gross profit available to cover the company's operating losses, potentially making the company's net loss bigger this quarter.

5. What improvements (if any) there are in operating expenses

Aurora announced in February that it was eliminating 500 positions to improve its financial performance. In Q2, the company's operating expenses of CA$149.5 million were 14% higher than in Q1 when Aurora incurred operating expenses of $131.1 million. With general and administrative expenses of $70.8 million making up close to half (47%) of Aurora's total operating costs last quarter, investors should expect to see some noticeable cost savings this quarter. If not, it could suggest that management needs to make more cuts and that Aurora has not been aggressive enough in improving its bottom line.

6. How much distortion there is in income and expenses

In Q2, Aurora had CA$1.2 billion worth of other expenses, the bulk of which were related to impairments. Investors should be careful to look at this line item for a couple of reasons. The first is that it can explain an abnormal profit or loss in Q3, as there can be a lot of noise in this section that ends up impacting the bottom line. The second reason is that if impairment charges continue to show up in Q3, this pattern could undermine the reliability of the company's asset values and financials as a whole, which can make it difficult to trust the company's reporting if writedowns become the norm.

Investors should look at these numbers before considering the bottom line

The reason net income isn't on this list is that it can often be misleading for pot stocks, especially if there's a large one-time gain or loss. It can tell a much different story for investors than by focusing on the items listed above. By looking at the key areas noted above, investors will have more context to put the overall results into and can make a better assessment of just how well the company did.

Shares of Aurora have crashed 92% in the past 12 months, which is much worse than the Horizons Marijuana Life Sciences ETF, which is down 70% during the same period. Without a strong showing on all of the items above, it'll be difficult for Aurora to turn things around anytime soon. And until that happens, it'll remain a very high-risk investment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.