Aurora Cannabis Posts Big Gains In Revenue As Costs Drop, Prices Rise

Aurora Cannabis (ACB) posted a 55% sequential gain in revenue for the fiscal first quarter of 2019 with $29.6 million over the fourth quarter’s $19.1 million. It was a 260% jump over the same time period for last year, which was $8.2 million. The quarter ended on September 30, so these numbers do not include sales from adult use cannabis that became legal on October 17.

However, the company did note for the first two weeks to October 31, 2018, it was ranking at the top or among top-selling products and brands in many of the provinces that it was committed to supplying.

Unfortunately, the Q1 2019 gross profit was $8.1 million, compared to a $20.6 million in Q4 2018. Aurora said that the change in gross profit during the period was partially attributable to higher sales of inventory and lower fair value gains on changes in biological assets. Having said that the first quarter net income jumped to $104.2 million versus last year’s $3.6 million in Q1 2018. The company attributed the increase to the unrealized non-cash gain on derivatives and marketable securities.

“The commencement of adult consumer use sales in Canada has been very successful for Aurora, with strong performance across all product categories and brands. Our initial roll-out success demonstrates how our high-quality Aurora Standard products and well-positioned brands have resonated strongly with the consumer market and our preparedness for the logistical challenges in effectively bringing our products to market,” said Terry Booth, CEO of Aurora. “Given the strong unmet consumer demand evident across Canada, we are confident that our rapidly increasing production capacity will result in continued acceleration of revenue growth.”

The company’s investment in The Green Organic Dutchman (TGODF) paid off handsomely.  The net cash and cash equivalents on hand increased to $147.8 million from $89.2 million at the end of Q4 2018. Working capital at the end of Q1 2019 was $548.4 million, as compared to $144.5 million at the end of Q4 2018.

Costs Drop As Prices Rise

The cash cost of the sales fell by 12% in the first quarter of 2019 versus the same time period for last year. The cash cost to produce a gram of dried cannabis fell by 22.5% and declined by 14.7% sequentially. This decrease was attributed to more efficient production processes following the acquisition of CanniMed.

The company statement said that the average net selling price of cannabis sold was $9.19 per gram in Q1 2019, consistent with Q4 2018, and a 12% increase compared to Q1 2018 as a result of an increase in cannabis extracts sold. Total product sold was 2,676 kilograms of dried cannabis and cannabis extracts in Q1 2019, an increase of 65% as compared to Q4 2018, and 201% compared to Q1 2018.

Gross margins increased 70% due to a higher average selling price per gram of dried cannabis, coupled with a higher proportion of cannabis oil sales in the company’s sales mix ratio. The company did note that margins took a slight hit sequentially as a result of more stringent packaging requirements.

Looking Ahead

Aurora said that it chose to constrain international sales in order to continue servicing the Canadian medical market while building inventory in preparation for the Canadian adult consumer-use market. Still, Aurora maintains its position in the international medical market has the most significant growth prospects and is expected to grow to 10 million kilograms per annum.

The company said that it has established a significant early mover advantage, has a presence on five continents, and is currently Europe’s largest distributor of medical cannabis. Aurora also currently owns two of the seven cannabis production facilities in the world that are EU GMP certified, and additionally owns one EU GMP certified distribution facility in Germany, ensuring continued access to restrictive markets.

The company anticipates reaching a production run rate of approximately 150,000 kg per annum early in calendar 2019, scaling up subsequently to over 500,000 kg per annum through further Aurora Sky facilities, Aurora Sun and Aurora Nordic. The statement said that the high degree of automation, and customized and fully controlled growing conditions at the Sky Class facilities are anticipated to result in production costs well below one dollar per gram.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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