Medical and consumer cannabis products producer Aurora Cannabis (NYSE: ACB)
stock has experienced an explosive spike at the beginning of 2021 but has since been selling off towards triple bottom support. Shares have been mirroring Tilray (NASDAQ: TLRY
) through the various ups and downs as state-by-state U.S. legalization
continues to accelerate heading towards federal legalization
. Like many Canadian cannabis companies, Aurora has been harnessing growth as the Canadian markets expand from the legalization of marijuana products serving as a template. Prudent investors seeking exposure in this beaten-down cannabis play can monitor opportunistic pullback level to scale into a speculative position.
Q2 FY 2021 Earnings Release
On Feb. 26, 2021, Aurora reported its fiscal second-quarter ended December 31, 2021. The Company reported total cannabis revenues up 11% year-over-year (YoY) to $70.3 million. Medical cannabis net revenues accounted for $38.9 million, up 41% YoY, and consumer cannabis was $28.61 million, up 25% YoY. Adjusted EBITDA loss was (-$16.8 million), which includes termination and restructuring costs of $2.9 million. SG&A inclusive of R&D was down (-53%) YoY to $38.9 million while adjusted gross margin was 56% versus 59% prior year. Total cash burn was $22.7 million to fund operations, excluding working capital investments. This was driving primarily due to the increase cost of sales due to the under-utilized capacity as a result of the scale back of Aurora Sky. The Company ended the quarter with $565 million in cash. The Company reduced capacity by shuttering three of the four cultivation facilities set to close, including operations at Aurora Sun facility and a (-75%) reduction in the Aurora Sky facility. The Company stated, “For the period, our core revenue strength in medical and consumer was complemented by initial rollouts of vape products and concentrates. Combined, these elements are part of the proven, regulated CPG strategy we’ve adopted… We have also focused on improving our cash burn, margins, and overall financial flexibility. To that point, our year-over-year cash use has decrease (-74%) to $70.5 million, our normalized margins remain solid particularly in medical, and our recently amended credit facility gives Aurora much-improved optionality as opportunities arise.”
Conference Call Takeaways
Aurora Cannabis CEO, Miguel Martin, set the tone, “Our fiscal second quarter represents a pivot for Aurora from a full year of tough, but shareholder-friendly decisions that will ultimately lay the foundation for the future. We essentially reorganize the business, reset strategy and mobilize our entries team, where they are now organized behind our strategic plan.” CEO Martin was installed in August 2020 to turn around the Company. The Company sent its first shipment of medical cannabis to Cantek Holdings in Israel. The Company has been selling medical marijuana in Canada and Europe for four years with no price compression and 56% gross margins. Both domestic and international medical businesses grew 43% YoY with 60% gross margins. Aurora is the number one medical marijuana company is Canada by revenue. CEO Martin summed it up, “The U.S. is clearly one of the largest markets today. With legislative reform that would allow companies like Aurora to operate THC businesses in the U.S. I would expect it to be much bigger… One thing I am confident in is that the competitive landscape in the U.S. will look very different if THC is de-scheduled.”
Stock Dilution Concerns
Aurora investors have had to deal with ongoing share dilution through constant secondary offerings. On Jan. 21, Aurora announced a $125 million bought deal financing agreement for 12 million units priced at $10.45 per unit for one common share and one half of one common share purchase warrant. On Mar. 10, 2021, the Company filed for a $1 billion shelf offering composed of common shares, preferred shares, warrants, subscription receipts and debt securities up to $1 billion over a 25 month period to pursue strategic objectives. Aurora had 115 million shares by 1H 2020 but grew to 200 million shares at years-end 2020. As of 2021, another 13 million shares are potentially added to the outstanding share count. While the Company has reduced its cash burn, the latest $1 billion raise may put a ceiling on share prices since it lasts 25 months. However, the anticipation may have been priced in as the sell-off is trying to find a floor off a triple bottom at $8.63.
ACB Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a more precision near-term perspective of the landscape for ACB stock. The weekly rifle chart breakdown has a falling 5-period moving average (MA) resistance at $9.71. The uptrend peaked at the $8.96 Fibonacci (fib) level. The fallout in the cannabis stocks triggered a breakdown in the sector as the weekly stochastic full oscillation leaned through the oversold 20-band level. The daily market structure low (MSL) triggers above $9.38, but a two daily market structure highs (MSH) triggered under the $14.39 and $10.11 breakdowns. The daily rifle chart downtrend is stalling with a 5-period MA flattening at $9.13 while the stochastic attempts to cross through the 20-band in a make or break set-up. Prudent investors looking for exposure can monitor opportunistic pullback price levels at the $8.63 fib, $8.22 fib, $7.23 fib, $6.86 fib, and the $6.29 fib. Keep an eye on peers TLRY, Canopy Growth (NASDAQ: CGC) and Grow Generation (NASDAQ: GRWG) as they tend to move as a group. Upside trajectories range from the $11.42 towards the $14.67 fib.
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