The cannabis sector has put up a weak performance this year compared to the broader equity market. The Horizons Marijuana Life Sciences Index ETF (HMMJ) has lost 37.1% of its stock value YTD (year-to-date). However, the S&P 500 Index rose 24.2% during the same period.
Higher operating expenses contributed heavily to the poor performance of cannabis stocks. With the slower rate of its new store openings, there has been an excess supply of cannabis, which has caused cannabis prices to fall. The decline in cannabis prices has impacted the margins of cannabis players.
So, the majority of cannabis companies are focusing on lowering their cost of production by improving their efficiency. In this article, we’ll compare the cost and selling prices of Cronos Group (CRON) and Aurora Cannabis (ACB).
Comparing selling prices of CRON and ACB
From the above graph, we can see that Cronos Group’s average selling price fell last quarter after rising in the three previous quarters. In the third quarter, the company’s average selling price declined 41.8% from 6.44 Canadian dollars in the second quarter to 3.75 Canadian dollars. The company’s management attributed the growth in revenue from the wholesale business, which has lower selling prices, for the decline in its average selling price.
Meanwhile, the average selling price for Aurora Cannabis rose 6.8% quarter-over-quarter from 5.32 Canadian dollars to 5.68 Canadian dollars. The rise in the average selling price of adult-use cannabis and the decline in its sales volume of wholesale business drove the company’s average selling price.
For the quarter, the average selling price of adult-use marijuana rose 2.7% quarter-over-quarter to 5.28 Canadian dollars. However, the average selling price of medical cannabis and bulk sales fell by 6% and 4.2%, respectively.
For the quarter, the overall average selling price of Aurora Cannabis was significantly higher than Cronos Group. In the last four quarters, Aurora Cannabis’s average selling price was higher than for Cronos Group. Let’s look at the cost of sales.
Comparing the average cost of sales
For the third quarter, Cronos Group’s average cost of sales before fair value adjustments came in at 2.27 Canadian dollars. This represents a fall of 24.6% from 3.01 Canadian dollars in the second quarter. The growth in sales from the wholesale business reduced the company’s average cost of sales.
Cronos Group reported that its wholesale business doesn’t require postal processing and packaging. Plus, it’s not subject to an excise tax, which caused its cost of sales to fall.
During the comparable quarter, Aurora Cannabis’s cash cost to produce per gram fell 25.4% to 0.85 Canadian dollars. The company’s management credited its new cultivation facilities for the decline in the cash cost of production.
However, the company’s cost of sales before fair value adjustments stood at 3.29 Canadian dollars, which was 11.9% higher than in the previous quarter. Compared to CRON, Aurora Cannabis’s cost of sales before fair value adjustments was higher in the previous quarter.
YTD stock performance of CRON and ACB
Both Cronos Group and Aurora Cannabis have underperformed the broader equity market this year. Year-to-date, Cronos Group and Aurora Cannabis have lost 40% and 52.5% of their stock values, respectively. The weakness in the marijuana sector and the lower-than-expected performance in their last two quarters appear to have dragged the companies’ stock prices down.
Seven of the 12 analysts covering Cronos Group stock gave it a “hold” rating. Their consensus price target for the stock stands at 12.88 Canadian dollars, which implies a return potential of 49.4%. For more information about analysts’ opinions on CGC stock, please read Cronos Group: Analysts’ Ratings after Q3 Earnings.
Eight of 17 analysts covering Aurora Cannabis rated the stock as a “buy.” These analysts set a 12-month price target of 5.80 Canadian dollars with a return potential of 93.5%. For more cannabis-related news and update, please check out 420 Investor Daily.