Aurora Cannabis Shareholders Not Happy With Earnings

Aurora Cannabis Inc.  (NYSE: ACB) stock was selling off by over 8% in pre-market trading after the Canadian cannabis company reported its earnings following the market close on Thursday. Aurora delivered total revenue for its first fiscal quarter in Canadian dollars of $75.6 million which missed analyst estimates by $17 million. The first quarter GAAP EPS of C$0.01 did beat estimates by C$0.06.

The company said its consumer cannabis revenues were $30 million in the quarter, a 33% sequential drop and contributed 40% to total consolidated net revenue. The decline in cannabis net revenues was attributed ordering that slowed considerably during the summer as distributors worked through inventories and as the industry was impacted by the slow pace of retail store licensing.

“Over the past several years, Aurora has earned its place as a global leader in the cannabis industry. Despite short term distribution and regulatory headwinds in Canada that have temporarily impacted the industry, the long-term opportunity for Aurora in the global cannabis and cannabinoids market is immense,” said Terry Booth, CEO, Aurora Cannabis. “Aurora has and will continue to focus on everything in our control. Our success in doing this was demonstrated again this quarter by continued strong improvement in our core KPIs. We delivered solid operating results this quarter, exemplified by our industry-leading cash cost to produce which declined another 25% to $0.85 per gram this quarter, as well as by our industry-leading gross margins and market share.”

Scaling Back

Aurora said it decided to stop construction activity at its Aurora Nordic 2 facility in Denmark, which is expected to save approximately $80 million over the next 12 months. Aurora Nordic 1 is fully completed and has received a production license, and the company expects to receive a license to sell shortly. Aurora also decided to defer the majority of the final construction and commissioning activities at its Aurora Sun facility for the foreseeable future which is expected to conserve approximately $110 million of cash. The company said that as global demand develops, or as Aurora’s market share in the global cannabis market increases, it will reactivate these projects.

Medical Is Strong

The company’s medical cannabis net revenue increased 3% quarter-over-quarter to over $30 million. On the company’s earnings call, CFO Glen Ibbott said the increase was “driven by our continued success in growing our patient base, which currently stands at just over 91,000 clients. Our revenue was affected by a slight decrease in the average net selling price of medical cannabis of 6%, but more than offset by patient growth. The decline in selling price was the result of temporary pricing incentives designed to support the move of valuable long-term medical patients to Aurora, and away from LPs that we’re not servicing them well.”

Cost To Produce Drops

Aurora has always had a goal to be a low-cost producer and that mission seems to be fulfilled. Booth said, “I’m also proud to report that our high-tech cultivation facilities delivered on our promise to provide industry-leading indoor cash cost to produce below $1 a gram. And in fact, this quarter we came in well ahead of our expectations at $0.85 a gram.”

Looking Ahead

Aurora said that it knew this quarter would be tough and that it expected a growth plateau. Vapes and edible products will soon be available for sale and the company said that this will bring back sales.

Mr. Booth added, “In order to capitalize on this global market, we recognize the need to be nimble and proactive. To enhance our financial flexibility and position us to take maximum advantage of future growth opportunities, we have also taken decisive steps to immediately strengthen our balance sheet. Specifically, these steps include: (1) the announcement of a formal plan to settle our 5.0% convertible debentures due March 2020, (2) a reduction in our capital investments over the next several quarters by over $190 million to better match near-term capacity expansion with anticipated demand, while maintaining our long-term demand outlook, and (3) raising over US$124 million in gross equity proceeds since the start of fiscal 2020 through our at-the-market (“ATM”) financing program.”

“We view these as short-term headwinds and despite them, Aurora has continued to maintain our position as the leading producer and supplier of high quality medical and consumer cannabis products,” said Booth on the earnings call.

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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