Why Aurora Cannabis Stock Surged 68% on May 15

Aurora Cannabis (NYSE:ACB) reported its third-quarter results on May 14. The earnings report was a surprise for most analysts and investors. The COVID-19 pandemic helped marijuana sales rise, which boosted cannabis companies’ revenue growth. Aurora Cannabis stock surged and closed 68.6% higher at $11.20 on the NYSE. The stock also rose 66.8% and closed at 15.3 Canadian dollars on the Toronto Stock Exchange. The amount is a huge one-day gain especially for a stock that just went through a reverse stock split. Will the stock performance continue?

Aurora Cannabis’ revenue growth drove its stock performance

Aurora Cannabis’s third-quarter revenue was 78.4 million Canadian dollars, which beat analysts’ estimate of 66.6 million Canadian dollars. The revenue also showed YoY (year-over-year) growth of 20.3%. The surge in marijuana sales amid the pandemic helped the company’s revenue to rise compared to its revenue of 56.0 million Canadian dollars in the second quarter of fiscal 2020.

Aurora Cannabis sold 12,729 kilograms of cannabis compared to 9,501 kilograms in the second quarter of fiscal 2020. Consumer cannabis’s net revenue was 41.5 million Canadian dollars, which comprised of Daily Special, which launched in February, and other Cannabis 2.0 products. Medical cannabis’s revenue was around 31.1 million Canadian dollars, which included of 27.0 million Canadian dollars from Canada and 4.0 million Canadian dollars from international medical cannabis sales.

Is it all good news?

Management sounded positive about the third-quarter results and the outlook. Michael Singer, Aurora Cannabis’s executive chairman and interim CEO said, “I am incredibly proud of the Aurora team for working through these challenging times in order to maintain uninterrupted operations at all of our production facilities and ensure we continue to meet the needs of our patients and consumers. I am also pleased that our third quarter 2020 financial results were in-line with our expectations, and that we remain firmly on track with the cost-savings and capex goals we detailed during our business transformation plan in February 2020.”

However, in my opinion, it might be too soon to get excited about the company. Aurora Cannabis continued to report a negative EBITDA of 50.8 Canadian dollars in the first quarter. The company repeatedly missed analysts’ and investors’ expectations last year. The continued downfall even put the stock price at the risk of delisting. Aurora Cannabis made the reverse stock split decision to save its stock and strengthen its cash position. Management mentioned that the third quarter saw less impact from COVID-19. However, the impact could be higher in the fourth quarter.

Hexo also faced the risk of getting delisted. Recently, the company announced that it received an NYSE listing warning letter. Hexo has six months to meet the compliance requirements.

Cannabis sector benefitted

Most of the cannabis companies have been reporting good revenue growth in their recent quarters. However, many companies haven’t been able to achieve a positive EBITDA yet. Tilray (NASDAQ:TLRY) and Cronos Group (NASDAQ:CRON) showed YoY revenue growth in their recent quarters. Meanwhile, Green Thumb Industries also showed a YoY growth of 267.6% to $102.6 million and beat analysts’ estimates of $92.1 million.

The gain in Aurora Cannabis stock uplifted the entire sector on May 15. The Horizons Marijuana Life Sciences ETF gained 9.3% on May 15. Meanwhile, Tilray, Canopy Growth (NYSE:CGC), Hexo, Aphria (NYSE:APHA), and Green Thumb gained 8.3%, 14.4%, 21.4%, 11.2%, and 15.2% on the same day.

The surge in marijuana sales, especially after it became an essential item amid the pandemic, has helped the sector rebound. After struggling in 2019 and at the beginning of 2020, May looks good for the sector. We’ll have to wait and see how the other cannabis stocks perform. To learn more, read Marijuana Investors: Forecast in May amid COVID-19.