With a share price down 99.5% from its early 2019 highs, $225 million in sales, and $818 million in annual losses, on the surface at least, Canadian marijuana stock Aurora Cannabis (ACB -0.15%) stock does not look much like a screaming buy right now.
But a lot of things could change for Aurora Cannabis in 2024.
And if these things do change, then now really might be the right time to buy Aurora Cannabis.
Aurora Cannabis by the numbers
Let's start with where things stand.
Aurora Cannabis reported earnings for the second quarter of its fiscal 2024, ended Sept. 30, 2023, in November. The company recorded $46.9 million in sales (as converted into U.S. dollars), spent $21.4 million on cost of goods sold, and thus booked $25.5 million in gross profit -- its highest level of gross profitability since mid-2020.
Operating costs for the company in fiscal Q2 were $27.6 million, eating up all the gross profit and leaving Aurora Cannabis with an operating loss -- but this was its smallest operating loss since mid-2017, back before marijuana was legalized for sale in Canada. What's more, fiscal Q1 losses were the second smallest since mid-2017. So from this perspective, at least, things really do appear to be trending up for Aurora Cannabis, with two straight quarters of record-low and shrinking losses.
CEO Miguel Martin actually found it hard to contain his enthusiasm about the results, saying that with sales up 30% year over year and profits knocking on the door of breakeven, fiscal 2024 already looks to be the company's "strongest fiscal year to date."
Already, Aurora Cannabis has succeeded in cutting 400 million Canadian dollars (about $295 million) out of its cost structure. With plans to cut CA$40 million ($30 million) more this year, and more cash than debt on the balance sheet (minimizing interest expense) there's every opportunity for the company to earn its first net profit in fiscal 2024.
And yet, if that happens, it may come as a complete surprise to Wall Street.
Analysts are always the last to know
Analysts polled by S&P Global Market Intelligence are still predicting a negative income year (negative $0.09 per share) for Aurora Cannabis in fiscal 2024. They think the company will lose money next year as well ($0.03 per share) and only break even in fiscal 2026 -- before finally earning a profit, according to generally accepted accounting principles (GAAP), of $0.03 per share in 2027.
Granted, it's still up in the air whether Aurora Cannabis will be able to earn a profit this year. Losing more than $21 million in Q1 didn't get the company off to a great start, and the company continued losing money in Q2. With management forecasting Q3 revenue "largely similar" to Q2, furthermore, Aurora will probably lose at least a little money next quarter as well -- unless cost-cutting saves the day.
But even so, even if Aurora Cannabis does miss profitability this year by the skin of its teeth, things do seem to be trending higher, putting profitability within reach for fiscal 2025. Indeed, Aurora Cannabis management is on record promising to deliver positive free cash flow next year, and if it does that, actual GAAP profitability shouldn't be too far behind.
This is a result Wall Street is most definitely not expecting.
The wild card: Legalization
Now on top of all the above, there's the potential for marijuana to be legalized in 2024. I know, I know -- people have been promising marijuana legalization was right around the corner ever since then-VP hopeful Kamala Harris basically promised the drug would be legalized back in 2020. But recent events in Washington, D.C., suggest this time could be different.
In August, the Department of Health and Human Services (HSS) recommended that the U.S. Drug Enforcement Agency (DEA) relax regulations on marijuana use. Just weeks later, President Joe Biden came out in favor of legalizing at least medical marijuana. Meanwhile in Congress, legislation to legalize banks providing financial services to marijuana companies, as well as legalize the drug itself, are proceeding in fits and starts.
After getting hopes up -- and dashed -- multiple times in recent years, investors in marijuana stocks are probably right to be cautious about betting that "this time will be different," and that legalization will finally happen in 2024. If it does happen, however, at the same time as Aurora Cannabis is finally getting its financial house in order, the profits could be tremendous.
Granted, a lot of things need to go right for this to happen. But even so, the fact remains that if these things do go right, Aurora Cannabis stock could be a screaming buy right now.
