Aurora Cannabis (TSX:ACB): Why You Should Buy the After-Earnings Dip – The Motley Fool Canada

Aurora Cannabis (TSX:ACB): Why You Should Buy the After-Earnings Dip - The Motley Fool Canada
Pot Shorts Cash In On Hazy Profitability Path: Cannabis Weekly
Aurora Cannabis (NYSE:ACB) is doing everything it can to capture its share of the marijuana industrys torrid growth.

The Canadian cannabis company has ramped up its production capabilities over the past year. It produced 57,442 kilograms of cannabis and sold 36,628 kilograms in fiscal 2019. That represented growth of 920% and 629%, respectively, compared to the prior year.

Further, the company’s medical segment seems to be firing on all cylinders. Aurora’s average net selling price for recreational product fell by about 6%, but its average retail price for medical products remained constant. There is bound to be a supply glut in the recreational market eventually, which will drag down prices and margins.

Auroras higher production capacity helped to fuel a 349% year-over-year increase in revenue, to 247.9 million Canadian dollars.

Although holding Aurora accountable for its miss is important, it is equally essential to focus on the big picture. All things considered, the marijuana company’s revenues weren’t bad at all. After all, the $98.9 million figure represented a 415% increase year over year, and, more importantly, a 52% sequential increase.

“In 2019 Aurora took its place as the global leader in cannabis production, research, innovation, and international market development,” CEO Terry Booth said in a press release.

For the fourth quarter, Auroras net cannabis revenue rose 61% sequentially to CA$94.6 million. The companys Canadian consumer cannabis revenue climbed 52% to CA$44.9 million, while its medical cannabis revenue increased 10% to CA$29.7 million. Its wholesale bulk cannabis revenue, meanwhile, grew by nearly 10 times from the third quarter to CA$20.1 million. “We continue to see strong growth in cannabis revenues in both medical and consumer categories,” CFO Glen Ibbott said.

Importantly, Auroras profit margins are improving as it scales its cannabis production. The marijuana companys production costs declined 20% sequentially to CA$1.14 per gram in the fourth quarter. That helped Auroras gross margin on its cannabis net revenue improve by 3 percentage points, to 58%.

Still, Aurora is not yet profitable. The cannabis companys earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at a loss of CA$11.7 million. That is, however, a significant improvement from a loss of CA$36.6 million in the third quarter.

It is always a crucial time when one of the top cannabis companies releases its earnings report. Given the nascent nature of the industry, the performance of these firms gives us important clues as to how the market is evolving.

Aurora is gearing up for the impending legalization of cannabis derivative products — such as edibles and beverages — in Canada. The company said it plans to have a “robust product line-up” set to launch by December.

As the Canadian market tightens, it is becoming harder for cannabis firms to acquire and maintain a notable share of the market. Aurora, though, managed to deliver serious organic growth in this competitive environment. 

“With the Canadian launch of derivative products in the coming months, we have made the necessary investments to ensure readiness and focus on a variety of value-added products,” Ibbott said. “We are very excited to supply an expanded consumer market with premium cannabis and new product forms.”

Lastly, I still believe Aurora will eventually find a partner with deep pockets that will further improve its prospects. All these factors make Aurora one of the better plays in the cannabis market, in my opinion. 

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