uploads///Aurora Cannabis

Aurora Cannabis: Are Its Q4 Results Good or Bad News?


Nov. 20 2020, Updated 12:52 p.m. ET

Aurora Cannabis (ACB) is a prominent player in the cannabis industry. After Canopy Growth reported disastrous results last month and took a piece out of the cannabis sector, investors waited for Aurora Cannabis’s earnings. The company reported its fourth-quarter results on Wednesday after the market closed. Did the company impress investors?

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Did Aurora Cannabis deliver as promised?

Aurora Cannabis generated a net revenue increase of 52% to 98.9 million Canadian dollars YoY (year-over-year) in the fourth quarter. The company missed its revenue guidance, which was 100 million–107 million Canadian dollars. The company also missed analysts’ estimate of 108.2 million Canadian dollars.

Aurora Cannabis didn’t deliver most of its promises when it increased the guidance. However, the results weren’t completely bad news.

Notably, the company’s net cannabis revenues were in line with the guidance. The revenues rose 61% sequentially to 94.6 million Canadian dollars. The company expected growth in all of its business segments. Canadian consumer cannabis revenues rose 52% to 44.9 Canadian dollars. Medical cannabis revenues also rose 10% to 29.7 million Canadian dollars. The company’s wholesale revenues were around 20.1 million Canadian dollars.

Aurora Cannabis expected an increase in the cash cost to produce per gram and gross margin. The gross margin on cannabis net revenues rose  3% to 58% sequentially. However, the cash cost to produce per gram fell 20% sequentially to 1.14 Canadian dollars per gram.

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What drove the revenues and gross margin?

There was growth in all of the business segments in Aurora Cannabis’s fourth-quarter results. Notably, higher production capacity and supply from Aurora Sky and Aurora River drove the revenues. A decline in the cash cost to produce per gram drove the gross margin. A higher gross margin on bulk sales also drove the gross margin. The cannabis produced in the fourth quarter rose to 29,034 kilograms compared to 15,590 kilograms. Higher production capacity by the Aurora Sky, Aurora River, and Ridge facilities contributed to the increased production.

Did Aurora Cannabis’s profitability increase?

Aurora Cannabis expected to report a positive EBITDA. However, the company reported a negative EBITDA of 11.7 million Canadian dollars. The EBITDA was lower than analysts’ estimate of 19.5 million Canadian dollars and the EBITDA during the same period last year.

We know why a positive EBITDA is important for a company. Most of the cannabis players reported a negative EBITDA in their recent quarter, which implies that their operational costs are higher. The Canadian consumer channel continues to pose a challenge for Aurora Cannabis. The company is working with its regulatory and channel partners to streamline distribution to improve profitability.

Tilray might report a negative EBITDA of $17.5 million in the third quarter, which is lower than its EBITDA in the third quarter of 2018. The company might report a loss of $0.31 per share in the third quarter compared to a loss of $0.20 per share in the third quarter of 2018.

Canopy Growth (CGC) (WEED) reported a negative EBITDA of 92.06 million Canadian dollars in the first quarter of 2020. The company also reported wide losses of 0.30 Canadian dollars per share.

Aphria (APHA) reported a negative EBITDA of 0.2 million Canadian dollars in the fourth quarter. However, the company reported a profit of $0.05 per share in the fourth quarter.

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Management’s view

For fiscal 2019, Aurora Cannabis’s revenues rose 349% to 247.9 million Canadian dollars. The gross margin also increased to 55% compared to 65% in 2018.

Talking about the results and outlook, Aurora Cannabis’s CFO, Glen Ibbott, said, “We continue to see strong growth in cannabis revenues in both medical and consumer categories. Our cultivation execution continues to drive production costs lower and improve gross margins. Aurora’s diversified product portfolio remains in demand with patients and consumers alike.”

Aurora Cannabis’s stock performance

Aurora Cannabis has gained 18%, while Aphria and Canopy Growth have gained 10.2% and 16.2% in September. The company closed 3.3% higher yesterday. However, Aurora Cannabis is trading 8.1% down in pre-market trading today.

The Horizons Marijuana Life Sciences ETF (HMMJ) has gained 6.7% in September. HMMJ tracks the North American cannabis industry. Tilray fell in August after its results. However, the company has increased 20% in September.

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What’s the next step?

All of the cannabis companies are gearing up for Cannabis 2.0—the second phase of cannabis legalization in Canada. Cannabis 2.0 will legalize edibles, cannabis-infused beverages, extracts, and various other products. To learn more, read Cannabis 2.0 Legalization: Canada Is Ready.

Aurora Cannabis’s management said, “With the Canadian launch of derivative products in the coming months, we have made the necessary investments to ensure readiness and focus on a variety of value-added products. We are very excited to supply an expanded consumer market with premium cannabis and new product forms.”

Along with Canopy Growth, Tilray, Cronos Group, and other Canadian cannabis companies, Aurora Cannabis plans to expand its edibles business after legalization.

Aurora Cannabis plans to have a strong product lineup ready to launch in December. The company doesn’t expect increased revenues from the edibles business. However, the company is optimistic that the adjusted EBITDA could improve in the future due to higher revenue growth and an improvement in the gross margin. The company also plans to advance its hemp business in the US with the passing of the US Farm Act.

Cannabis industry

We know how important regulations are for the cannabis industry. I think cannabis players could benefit from federal marijuana legalization. Regulation violations hit the industry hard in the last few months. As a result, presidential candidates are pushing for legalization. Aurora Cannabis mentioned that it’s taking steps to ensure that its expansion in the US market meets state and federal laws. To learn more, read Cannabis: While the US Waits, the World Opens Up.

So far, September has been good for cannabis companies. Markets and analysts were optimistic about Aurora Cannabis’s results. Will the company’s results take a toll on the sector? The company will hold its earnings call today when the market opens.

We’ll provide an in-depth review of Aurora Cannabis’s fourth-quarter results after its earnings call.


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