Please ensure Javascript is enabled for purposes of website accessibility

Why Aurora Cannabis Stock Popped Today

By Rich Smith – Jan 10, 2022 at 10:58AM

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

Is good news for Tilray good news for every other marijuana company, too?

What happened

Shares of marijuana company Aurora Cannabis (ACB 4.83%) jumped 3% as of 3 p.m. ET on Monday.

You can thank its competitor Tilray (TLRY 0.40%) for that.

So what

In a surprise announcement this morning, Tilray said it was able to cut so much cost from its reverse merger with Aphria last year that it ended up earning $6 million in its fiscal second quarter 2022 -- versus losing $89 million a year ago. Additionally, the company said revenue for the quarter increased 20% year over year to $155 million, with "strong" adjusted gross margins of 43%.  

Tilray stock popped more than 11% on the news.

Rising stock chart is labeled Cannabis Inc with dollar signs and marijuana leaves decorations.

Image source: Getty Images.

Now what

Granted, this is primarily good news for Tilray. But investors are also taking it as a foreshadowing of how profitable Aurora Cannabis might one day become if it is able to duplicate Tilray's success.

There are, however, a few caveats that could interfere with that happening. Right now, Tilray boasts the "#1 cannabis market share in Canada" and says it's also "#1 in Germany" and the "international medical cannabis market leader" to boot. The economies of scale from its large size -- plus the even larger size that comes with its merger with Aphria -- helped Tilray cut $70 million a year from its cost structure, according to the company.

Now here's the problem for Aurora Cannabis (and its fans): According to data from S&P Global Market Intelligence, the marijuana company is currently operating at an annual loss of more than $220 million -- which has been true for the past three years running. So for Aurora Cannabis to duplicate Tilray's feat, it would need to cut three times as much cost from its operations as Tilray has in order to become profitable.

I'm not saying it's impossible for Aurora, with less than half Tilray's market share, to do what Tilray has done. I'm just saying it seems unlikely.  

Rich Smith 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.

Premium Investing Services

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