Aurora Cannabis Q2 Financial Report
One of the harder marijuana stocks to predict in 2018 was Aurora Cannabis Inc (NYSE:ACB).
Aurora has, for a long while, been among the most intriguing—and at times the most maddening—marijuana companies. Despite all that, ACB stock has surged by 46% since the beginning of 2019. And following the Aurora Cannabis Q2 financial report, I believe it can gain another 50% by year’s end.
Net revenue hit CA$54.2 million, up 83% from the last quarter and a whopping 363% from a year before. While those numbers may seem stellar, they weren’t all that unexpected; Canadian marijuana legalization helped spark a huge sales boost, as you would expect. (Source: “Aurora Cannabis Announces Financial Results for the Second Quarter of Fiscal 2019,” Aurora Cannabis Inc, February 11, 2019.)
But in the days following the release of the Aurora Cannabis Q2 financial report, we saw the company swing downward, followed by a rally. Considering the huge revenue increases, you’d expect share prices to rise. So what gives?
Despite the massive surge in revenue, it was offset by a massive loss of CA$237.8 million in the quarter. A year ago, ACB stock had earnings profits of CA$7.7 million. The previous quarter had the company netting a CA$105.5-million profit.
Chart courtesy of StockCharts.com
Between high taxes in Canada on the marijuana trade, sinking a huge amount of money into expanding its production capacity, lowered sales prices of products, and regulatory demands like packaging specifications, profits were quickly eaten away and replaced by the massive loss.
Still, the early outlook for the future of Aurora Cannabis in the Canadian market is positive.
The company captured about 20% of all sales in the country, speaking to its widespread and strong foundations in the Great White North.
It also finished its Aurora Sky facility (one of the major causes of the huge loss in the quarter) and is expected to reach its full production capacity “shortly.” (Source: Ibid.)
The report, then, was a mixed bag, showing both the potential of the industry and some growing pains.
We’re seeing massive growth in revenue and sales (as I expected) following Canadian legalization.
But we can’t forget that this is an industry still very much in its infancy. These are startups, essentially, and they need to be examined as such.
What that means is high amounts of capital are going to be burned through as these companies look to grow as quickly as possible. This is a common strategy, and one that anyone familiar with startups has seen countless times before.
The difference here, of course, is that this startup is a publicly traded company with a product already on store shelves. In other words, it has to juggle all this while also convincing investors that profitability is right around the corner.
So there are some complications in store for Aurora Cannabis stock moving forward, of that there is no doubt. But if the money is being spent wisely, then I see no reason why ACB stock can’t see another 50% gain in 2019.
The reason being that Aurora is increasing its supply capacity, putting it in a very advantageous position to be one of the prime suppliers of cannabis moving forward.
Another reason to not be too scared by the huge loss seen in the Aurora Cannabis Q2 financial report is that a lot of this has to do with Canadian regulations.
We’ve already seen how the country’s early attempts to regulate the market have been a touch overbearing, leading to supply shortages and a continued patronizing of the illicit market. Expect to see government changes come into effect that will increase sales and therefore help cut into those losses.
Which is all to say that there is a lot of room left for Aurora Cannabis stock to grow, which we’ll explore below.
“Aurora continues to execute strongly across all of its market segments, as demonstrated by the 83% revenue growth over last quarter and the significant increase in confirmed production results,” said CEO Terry Booth, adding:
Our brands continue to resonate extremely well in the consumer market, our patient numbers continue to increase steadily, and we have maintained our market leadership in Germany and other key international markets. We are experiencing exceptional demand for our Canadian medical and consumer products, as well as sustained strong demand internationally.
Aurora Cannabis Stock Projection
Aurora Cannabis Inc has made a name for itself doing one thing more than any other pot company: acquisitions. The business has made a ton of them.
The most recent one is Whistler Medical Marijuana Corp. The all-stock deal is worth CA$175.0 million and includes milestone payments.
Aurora is looking to expand its production capacity with this acquisition, as is usually the case. The acquired company is expected to have a total production capacity of over 5,000 kilograms (about 11,000 pounds) per year when its second location reaches full capacity. (Source: “Aurora Cannabis buying Whistler Medical Marijuana in deal worth up to $175M,” Global News, January 14, 2019.)
While I’ve been supportive of these acquisitions (for the most part), what Aurora Cannabis Inc really needs to boost its stock is a big partnership.
Many of its top competitors have nabbed “Big Tobacco” or “Big Alcohol” deals, leaving Aurora as the odd man out.
While it was linked to The Coca Cola Co (NYSE:KO) in late 2018, a deal has yet to emerge.
Until ACB stock scores one of those partnerships, it will be playing catch-up.
But there is one way that Aurora is dominating: name recognition.
Among millennials, Aurora is a very popular stock.
This is good news for a lot of reasons, but the main one has to do with Aurora’s success long-term. While many investors today are from an older generation who only ever knew marijuana as an illicit drug, younger people growing up today instead see the drug as a product, no different than any other, to be bought and sold on the public market.
With the stigma dispelled, younger investors, who will become an increasingly large share of the total market as time goes on, will continue to drive marijuana stocks for years to come. This puts ACB stock in a very advantageous position.
While it wasn’t perfect, Aurora Cannabis Inc’s Q2 financial report did show a lot of promise.
While there is definitely an issue regarding the company’s losses, its huge jump in revenue is a heartening sight to behold and speaks to the potential of the Canadian market.
On top of that, Aurora Cannabis stock is going to benefit from strong support among younger investors who will only continue to grow in importance as time wears on.
Overall, I fully expect ACB stock to see another 50% gain in 2019, although the path to that gain may be a bumpy ride.