Aurora Cannabis’s Near-Term Management Outlook



Aurora Cannabis (ACB) reported its first-quarter earnings of fiscal 2020 on November 14. For the quarter, the company reported revenues of $75.25 million Canadian dollars. It’s a fall of 24% from $98.94 million Canadian dollars in the fourth quarter of fiscal 2019. The decline in consumer cannabis sales and wholesale sales had brought the company’s revenue down. The company’s management blamed the provincial distributors, who decided to lower their inventory levels for lower revenues.

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Also, Aurora’s management announced it would scale down its expansion plans, citing a decline in demand for cannabis. The company stopped the construction of its Aurora Nordic 2 facility in Denmark and Aurora Sun facility in Alberta. ACB expects the decision to scale down its expansion plans to save $190 million Canadian dollars of cash.

With this backdrop, let’s look at what the management is expecting from the company in the near term.

Aurora management’s outlook

Aurora expects its second-quarter sales to be on the lower side. However, ACB expects the improvement in Canadian consumer infrastructure with the opening of new retail stores, and the introduction of Cannabis 2.0 products to drive its sales in the second half of fiscal 2020. The management is projecting the company’s capital expenditure for the second quarter to be at $108 million Canadian dollars. However, they expect it to shrink to $70 million Canadian dollars in the third quarter and $50 million Canadian dollars in the fourth quarter.

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Aurora is focusing on the development of new innovative products. Also, the company is enhancing its customer experience to attract new patients and customers. Recently, the company had introduced Aurora Cloud, a concentrated CBD vape product for patients. Also, ACB launched Aurora Oral Dissolve Strips, a sublingual strip developed in partnership with CTT Pharmaceuticals, on October 8.

ACB looks for new markets, educates customers

Canada allowed the sale of Cannabis 2.0 products on October 17. To capture the untapped market, Aurora Cannabis has already submitted its Cannabis 2.0 products to Health Canada for approval. The government health agency has set 60 days of the waiting period for approval. During this time, the company can’t sell its derived products. So, Aurora expects to introduce its cannabis-infused products by the end of this year.

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Initially, ACB planned to introduce cannabis-infused vapes, concentrates, gummies, chocolates, mints, and cookies. Aurora’s management said that it built an inventory of these derived products. Now, it’s waiting for the necessary approvals to ship them. Ahead of the derived product’s release, the company launched Ready for Edibles, an educational program. It educates new and existing customers about responsible consumption and safe storage of cannabis-derived products.

Analysts’ expectations and YTD performance

For fiscal 2020, analysts expect Aurora to report revenue of $405 million Canadian dollars. This represents a rise of 63.4% from $247.9 million Canadian dollars in fiscal 2019. Also, they expect the company to report negative EBITDA in all the remaining three quarters of fiscal 2020. For fiscal 2020, analysts project Aurora to report a negative EBITDA of $95.5 million Canadian dollars. But, this is an improvement from a negative EBITDA of $156.0 million in fiscal 2019.

In the last three days of trading, Aurora’s stock rose by 38%. Investors’ euphoria over the passing of the law to allow cannabis at the federal level led the company’s stock to rise. Despite the surge, the company has lost 38.9% of its stock value this year as of November 21. The weak first-quarter performance and the scaling down its expansion plans caused the company’s stock to fall. Also, the weakness in the cannabis sector did not help ACB. Meanwhile, peers Cannabis Growth (WEED) (CGC), Cronos Group (CRON), and Aphria (APHA) fell by 26.2%, 29.7%, and 16.1%, during the same period, respectively.


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