Our Analysis of ACB’s Latest Financial Results

Once a hot favorite of analysts and investors, Aurora Cannabis (ACB) has become one of the worst-performing cannabis stocks of 2019. Year-to-date, the stock is down 49.60% on the NYSE and 53.17% on the TSE (Toronto Stock Exchange).

On November 27, ACB stock rose 4.67% to 3.36 Canadian dollars on the TSE and 5.44% to $2.52 on the NYSE. Investors seem impressed with the company’s opening of an 11,000-square-foot flagship retail store in West Edmonton Mall, America’s largest. ACB is the mall’s only cannabis retailer. As Canada’s slower-than-anticipated retail rollout has been a major challenge in the cannabis sector, ACB’s retail venture in a mall with 30 million annual visitors could be a major positive.

Earlier, on November 21, ACB stock rose 18.18% to $3.12. Peer cannabis stocks Canopy Growth (CGC), HEXO (HEXO), Cronos Group (CRON), and Aphria (APHA) also rose. Their increase came after the House Judiciary Committee supported federally decriminalizing marijuana. However, the rally did not last, and stocks fell again due to industry and company-specific risks.

What’s weighing on ACB stock? Let’s dig for answers in the company’s news releases and financial results.

There seems to be no end to bad news for Aurora Cannabis

On November 29, Marijuana Business Daily reported that ACB’s products would be temporarily unavailable in Germany. This ban will continue until health authorities complete a review of a “proprietary step” in the company’s production process. ACB’s spokesperson communicated the company’s confidence in its products to Marijuana Business Daily. The company expects sales to resume in early 2020.

This ban could be a significant blow to ACB, considering that international sales were among the very few positives in the company’s first-quarter results. ACB’s international medical dried cannabis sales rose 62.43% YoY (year-over-year) and 1.61% sequentially to 4.55 million Canadian dollars in the first quarter, and its international medical cannabis extract sales reached 0.41 million Canadian dollars. In total, the company’s international medical cannabis sales grew 11% sequentially in the first quarter to around 5 million Canadian dollars.

In its first-quarter earnings call, ACB said it expects its international revenue growth to pick up. The company is working on developing appropriate strains at its European facilities to better suit markets there. It has also expanded its sales force team in Germany and aims to lead the country’s medical cannabis market.

However, the recent ban could jeopardize ACB’s German growth strategy. As reported by Marijuana Business Daily, ACB’s medical consumers will likely opt for products offered by other companies during the ban. Once ACB products are available again in Germany, patients would require another medical prescription to switch back to ACB’s products. However, physicians may not prescribe ACB’s products due to availability concerns. After the ban news, ACB fell 4.60% to 3.32 Canadian dollars on the TSE, and by 0.40% to $2.50 on the NYSE.

The dismal news follows ACB’s disappointing first-quarter earnings performance

In the first quarter, ACB’s revenue rose 217.59% YoY but fell 24% sequentially to 75.24 million Canadian dollars, missing analysts’ estimate of 94.24 million Canadian dollars. Sequentially, its medical marijuana sales rose 2.69%, but its recreational marijuana sales fell 33.11% to 30.02 million Canadian dollars. The company’s wholesale bulk cannabis revenue also fell sequentially, by 49% to 10.3 million Canadian dollars.

ACB’s first-quarter adjusted EBITDA loss of 39.67 million Canadian dollars almost doubled analysts’ forecast loss of 19.53 million Canadian dollars. ACB also missed its guidance of becoming EBITDA-positive in the fourth quarter of fiscal 2019.

Besides production delays and pricing pressures, ACB is losing investor trust

In its fiscal 2019 first-quarter earnings call, AC guided for an annual production capacity of 500,000 kilograms in fiscal 2020. The company now expects a fiscal 2020 production capacity of 150,000 kilograms. That estimate comes despite its production capacity growing 42.7% sequentially to 41,436 kilograms in fiscal 2020’s first quarter. The company’s average per-gram selling prices for medical cannabis and wholesale bulk cannabis fell sequentially in fiscal 2020 Q1. A slower-than-anticipated Canadian retail rollout and regulatory developments have significantly worsened the cannabis industry’s demand-supply imbalance.

In its fiscal 2020 first-quarter earnings release, ACB disclosed plans to immediately cease construction at its Aurora Nordic 2 project in Denmark and Aurora Sun facility, “to expand responsibly in line with global demand.” In the short term, the company expects this move to save up to 190 million Canadian dollars in expenses.

However, the announcement directly contradicts ACB’s construction update on October 3. As a result, prominent law firms have launched a class-action lawsuit against ACB, accusing it of securities fraud and intentionally misleading investors. As reported by MarketWatch, Jefferies analyst Owen Bennett justified investors’ distrust for ACB based on its cash pressures, ceased construction activity at Aurora Nordic and Aurora Sky, and low chances of becoming EBITDA- and cash-positive in 2020.

Analysts no longer expect ACB to become profitable by late 2020

In fiscal 2020, analysts expect ACB’s EBITDA to deteriorate 36.76% YoY to -98.65 million Canadian dollars. They foresee the company becoming EBITDA-positive in fiscal 2020, reporting EBITDA of 90 million Canadian dollars. For ACB, analysts forecast non-GAAP EPS of -0.10 Canadian dollars in fiscal 2021. They expect its EBITDA to turn positive in fiscal 2022, rising to 0.02 Canadian dollars.