What happened

Another day, another marijuana earnings report, and another rally in marijuana stocks! Much like Wednesday's earnings report from Canopy Growth (CGC 0.31%) set off a (short-lived) rally in share prices at Aurora Cannabis (ACB -1.80%) and Tilray Brands (TLRY 1.62%) on Wednesday, on Friday good news from Aurora Cannabis is helping to boost the stock prices of Canopy and Tilray.

As of 10:55 a.m. ET, Aurora Cannabis stock is up a strong 16.4%, while Canopy is getting a 10% boost and Tilray is bringing up the rear with a 7.2% gain.

So what

Exactly how good was Aurora's earnings report? Revenue for the fiscal first quarter of 2023 was 49.3 million Canadian dollars, down 18% year over year, with medical marijuana sales down 23% and consumer sales down 28%. That's not a particularly great start.

And it gets worse. Aurora Cannabis' net loss for the quarter -- CA$51.9 million -- was four times last year's CA$11.9 million net loss.  

Nevertheless, Aurora emphasized that its loss for the quarter was down significantly from the fiscal fourth quarter of 2022, in which the company reported losses of CA$618.8 million. Aurora also argued that when calculated according to its formula for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), losses for the quarter -- CA$8.7 million -- showed an improvement both against the prior quarter and the prior year's Q1.

Now what

I suppose that's a sort of good news. What seems to be getting investors most excited about Aurora's report, though, is the prospect of losses turning into profits -- even if those profits are only of the adjusted EBITDA variety.

According to management, Aurora Cannabis is currently on track to reach adjusted EBITDA profitability by the end of this year. Management wasn't specific on precisely how much adjusted EBITDA it hopes to claim as profit this year. And management made no promises about reaching real profitability as calculated according to generally accepted accounting principles (GAAP). Nevertheless, investors seem to feel that simply being able to claim some kind of profitability would be a win for Aurora Cannabis, and the prospect of seeing that happen within the next 12 months is giving them something to look forward to.

But here's why I think that's a bad reason to want to own Aurora Cannabis stock (or any other marijuana stock that's trying to imitate the company's moves). Aurora argues in its report that part of the reason why it is "quickly approaching our positive Adjusted EBITDA goal" is because it has succeeded in cutting CA$170 million in annual costs from its business. The problem is, if you dig into the company's income statement, you'll find that savings from cutting selling, general, and administrative expenses in the quarter were only down 8% in Q1 (falling much more slowly than revenue is falling). Meanwhile, Aurora cut its spending on research and development (R&D) -- the growth driver of any business -- by 56%.

Cutting spending on R&D may help to slim Aurora's losses in the short term. In the longer term, however, it's more likely to hamper the company's ability to grow its most profitable products, and grow its revenue. And seeing as revenue declines are the source of most of Aurora's problems right now, I'm a whole lot less excited about this stock today than most other investors seem to be.