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Weekly Cannabis Stock News: Aurora Cannabis Posts a Q3 Surprise

By Eric Volkman – May 18, 2020 at 3:42PM

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Few were expecting the struggling cannabis industry bellwether to do as well as it did in one crucial line item.

The standout star of the marijuana industry last week was unquestionably Aurora Cannabis (ACB 7.44%). In a sector that is starved for good news, Aurora delivered with its Q3 results, showing improvement in several areas that badly needed some. 

There was also cause for cautious optimism on the legal front, with Democrats stuffing cannabis banking reform into the HEROES Act, the latest stimulus bill to be passed by the House of Representatives. 

Let's tuck into both of these items.

Smiling woman holding marijuana seedling.

Image source: Getty Images.

Aurora rocks revenue in Q3

Aurora is one of the largest cannabis stocks by market capitalization, but frequently it's been the largest disappointment of all. The company has a history of missing analyst estimates, at times widely, and recently it announced a set of layoffs to improve its finances. Oh, and its CEO also retired not long ago.

But investor confidence came roaring back with the release of Aurora's Q3 of fiscal 2020 results. For the quarter, Aurora managed to improve its net revenue by a sturdy 18% over the Q2 result, to 78.4 million Canadian dollars ($55.6 million). That was well above the CA$66.7 million ($47 million) collectively estimated by analysts tracking the stock. 

More encouragingly, this growth came from one smart initiative -- the rollout of its successful budget product line, Daily Special -- and notable rises in other promising areas, such as the small-but-packed-with-potential international medical cannabis segment.

Not every number in the earnings report was so pretty. That ever-pesky bottom line, for one, which, although better than in previous quarters, was still deep in the red and worse than analysts expected, at over CA$137 million ($97 million).

Those kinds of losses drain cash fast, and Aurora has too little of it to go without yet another round of fund-raising soon. This either means more debt (which hurts the finances) or a new share issue (which dilutes existing shareholders). 

So, Aurora is far from being out of the woods, and quite some distance from being an appealing investment, in my opinion. But in the marijuana sector we'll take good news when we can get it, and Aurora's Q3 provided encouragement that there's growth in its future...if it can manage to stick it out long enough. 

The HEROES Act banks on cannabis

Could marijuana companies get a big break in the federal government's next stimulus package?

After famously being shut out of receiving aid from March's CARES Act, they might receive some help with a potential sequel, the HEROES Act recently passed by the House of Representatives.

According to its provisions, cannabis businesses will effectively be granted full, sorely needed access to basic services provided by banks -- checking accounts, lines of credit, etc. This is because the SAFE Banking Act formerly put forward by the Democrats has been included essentially intact in the new proposed legislation.

SAFE's measures would, for cannabis companies, cut the extra costs and resources devoted to chasing down financial services similar to those most businesses and individuals take for granted. As evidenced by Aurora's latest results -- and those of most of its peers -- these businesses could use all the help they can get.

There's only one problem: the Senate. It's still Republican-controlled, and its leader, Mitch McConnell, has  strongly and successfully resisted attempts to help the marijuana industry on the Federal level, in particular, vociferously criticizing this one. While everyone, even Washington lawmakers, is well aware of the need for a quick new stimulus initiative, we really shouldn't count on this effort being passed in its present form. 

One of the bones of contention is sure to be cannabis banking. But before we prematurely throw up our hands in defeat, let's be comforted by this: There's an awareness at very high levels of government that this sort of reform is necessary. It's now been proposed twice within a very short span of time by the House, and I doubt it'll melt away just because of a reactionary politician, or several, who finds the business distasteful.

Momentum counts in politics and in business, and despite its struggles, the marijuana industry has plenty of it in both arenas. Cannabis banking liberalization might not get knocked into law this round, but it's sure to come around for passage again in the not-so-distant future.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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