The last earnings report for Aurora Cannabis Inc. (NYSE: ACB) wasn’t pretty. Investors will be watching to see if the Canadian company’s fiscal third-quarter results, expected after market close Thursday, are any better.
Analysts are expecting revenues of $46.9 million and a share loss of $0.04. In April, Aurora reaffirmed previous commentary that it expects Q3 net revenue to show “modest growth relative to fiscal Q2 2020.” Last quarter, net revenue dropped 26% quarter over quarter.
A Cantor Fitzgerald analyst predicted the company will beat estimates for quarterly sales.
After closing down 10.22% Wednesday at $5.80, the stock rebounded Thursday. Aurora was up around 9% in afternoon trading, while the S&P 500 was down slightly.
In general, marijuana stocks haven’t flown high. Short interest in many of these stocks, including Aurora, Canopy Growth Corp. (NYSC: CGC) and Tilray Inc. (NASDAQ: TLRY), has increased.
Not surprisingly, the Edmonton-based company’s recent reverse stock split also wasn’t received favorably by markets. Aurora was in danger of being delisted by the New York Stock Exchange. The pot stock is also listed on the Toronto Stock Exchange.
The Marijuana Experiment
Founded in 2006, Aurora produces and sells medical and recreational cannabis products in over 20 countries. But observers are especially watching the Canadian cannabis experiment. The country legalized recreational use in October 2018. Uruguay is the only other country to legalize the sale of recreational pot so far, though a few others have legalized its use.
Overall, Canadian sales have been slower than expected. Analysts point to regulatory hurdles and delays in opening pot retail stores in some provinces, particularly Ontario. And many consumers still buy their pot on the black market, which avoids taxes.
In the U.S., recreational marijuana is currently legal in only 11 states. In a few others, prohibition laws are loosely enforced but sales aren’t legal. Medical use is approved in 33 states.
Pot in the Pantry
It will be interesting to see how the coronavirus pandemic has impacted sales for Aurora. Competitor Tilray recently reported that sales of recreational pot increased 23% for the most recent quarter. As Canada shut down its economy, some cannabis companies observed that consumers stocked up on marijuana just as many did with groceries and alcohol.
People who follow cannabis stocks will want to know if Aurora saw the same trend. And what is the sales forecast for both recreational and medical marijuana going forward?
Aurora could benefit from the growth of alternative products such as edibles, vapes and concentrate. Increasingly popular, these products (sometimes called “Cannabis 2.0”) have higher margins than the dried marijuana that you smoke.
The Cash Situation
Investors will also want to know how Aurora is managing its cash during the down market. Last month, the company announced a strengthened cash position. As of March 31, Aurora said it had $145 million in cash. Execs also announced a new At-the-Market (ATM) offering of $350 million “to provide further balance sheet strength and preserve flexibility given macroeconomic uncertainty caused by COVID-19.”
Interim CEO Michael Singer said Aurora is focused “on financial discipline across the entire organization. We are taking appropriate actions to strengthen our cash position and maintain financial flexibility as we navigate through the current environment.” The company cut staff earlier this year and took further steps to rein in costs. Aurora halted construction of new production facilities in Canada and Denmark.
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