Aurora Cannabis Transformation Is Nearly Complete
Aurora Cannabis (NYSE:ACB) was one of the first Canadian cannabis companies to accept the truth. The Canadian cannabis market is not nearly as large as the early data suggested. It’s still quite large but at today’s valuation only half of what it should be. And that led the company to make some hard decisions. Decisions that are still impacting the company today and have it set up for profits next quarter. Yes, that’s right, we have a Canadian Cannabis on the verge of profitability.
Aurora Cannabis Beats The Consensus, Loss Grows
Aurora Cannabis beat the consensus for revenue by 670 basis points to deliver a slight improvement on a QoQ basis. The $67.81 million (Canadian) beat the consensus by $4.22 million on mixed results in the underlying businesses. The Canadian Consumer segment saw its revenue fall -3.0% while the more lucrative Medical segment grew 4% on strength in International markets. The International Medical segment grew 41% from the prior quarter on strength in Europe and U.S. CBD.
Moving down, adjusted gross margins came in strong at 48% but are down 2.0% on a YOY basis. When excluding costs related to the ramp of production at the Aurora Nordic 1 facility margins come in at a much better 52.%. SG&A expense fell 19.6% due to restructuring efforts that termination costs and the closing of Canadian production facilities. On the bottom line, the adjusted loss came in at $57.9 million or up on a QoQ basis but there is a mitigating factor. Excluding the restructuring costs and fees (one time items) the company’s loss shrank to a mere $10.5 million.
In terms of guidance, the company says it will continue to cut costs. As of now, there are plans to shut down another two production facilities to bring the companies operations more in-line with the market. As for profitability, the company says it is on track for profitability in the fiscal 2nd quarter of 2021 or the current quarter on a calendar basis. That’s big news. Until then, investors can rest assured the company’s $250 million cash-balance is enough to sustain operations.
"We continue to take the necessary steps to execute our plan and transform our business to achieve sustainable profitability, and ultimately positive cash flow," stated Miguel Martin, Chief Executive Officer of Aurora Cannabis. "While we are not satisfied with our past performance in the growing Canadian consumer business, we have a sense of urgency in the execution of our tactical plan to grow profitable market share. Our efforts are directed at delivering the highest quality products, refocusing on our leading premium and ultra-premium brands, better allocating our sales and marketing spend, and executing key account partnerships at both the province and retail levels."
The Technical Outlook: Aurora Isn’t A Buy Yet
Shares of Aurora began moving higher days before the earnings release on the hopes of U.S. legalization. The U.S. market is an instant win for Cannabis and the Joe Biden victory is a step in the right direction. What investors need to be cautious of in this regard is the Senate. The Senate is likely to block any major cannabis legislation for the next two years. Until then we have Aurora’s prospects of profitability to drive share prices and that is still questionable.
Regarding the charts, Aurora popped after the earnings release but is giving up all the gains in the post-market action. The stock looks like it is confirming the overall downtrend and will likely remain at these low levels for the foreseeable future. In the meantime, watch for confirmation of support in the $4 to $10 region and use them as entry points to start loading up on this stock.
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