The Lower Price of Pot in Canada Is Weighing on Aurora Cannabis Stock – Barron's

Aurora Cannabis Stock Is Falling Because Pot Is Getting Cheaper in Canada


Photograph by Alex Person

Aurora Cannabis shares fell 1.7% in after-hours trading Monday after the marijuana company reported fiscal second-quarter earnings that were slightly better than Wall Street estimates and roughly in line with the company’s recent projections.

Aurora’s report is the first of a series expected from pot stocks this week, and it might set the tone for what to expect from the industry during this round of quarterly results.

The back story. It’s been an eventful 2019 for
Aurora Cannabis

(ACB). Its stock skyrocketed 43% in January, even after its sales guidance for its fiscal second-quarter guidance put sales at $50 billion to $55 billion. That was below the forecasts of the two analysts that cover the stock; they expected $60 million and $74.8 million. It helped that Aurora announced the acquisition of medical-marijuana producer Whistler Medical Marijuana for C$175 million in an all-stock deal last month. Still, Aurora dropped 35% in 2018 amid concerns about soaring expenses with production and acquisition costs outpacing revenue growth. Also adding to the worries: a production shortfall that left companies unable to fulfill weed demand across Canada after pot was legalized.

The plot twist: On Monday after the bell, Aurora reported a net revenue of C$54.2 million, a 363% rise compared with the same period in 2018. The sales figure puts revenue at the high end of the range that Aurora forecast last month.

But the company also reported losses of C$239.6 million versus earnings of C$7.2 million a year ago. The net income figure is complicated by noncash losses related to the company’s investments in other pot-industry players. On an operating basis, Aurora lost C$80 million in the quarter.

One closely watched number, Aurora’s cannabis production, came in a good bit ahead of Wall Street’s consensus. Aurora produced 7,822 kilograms of cannabis in the quarter versus an expected 7,000. Its production was up 550% from a year ago.

One wrinkle, though: Aurora’s per gram selling price for its cannabis fell 21% from a year ago to $6.23, a decline the company blamed largely on a new excise tax, as well as “the wholesale pricing structure in the Canadian consumer market.”

In a press release announcing earnings, Aurora noted its strong share of the market.

“Based on available data released by Health Canada for the Q2 2019 period, Aurora accounted for approximately 20% of all consumer sales across the country,” the company announced in the release.

Moving forward: Aurora shares closed the day down 5.5%, to $7.17. From here, Wall Street will be looking for clues that the company can profitably support its surging business. Perhaps more than numbers, investors want to see that expansion costs are under control, while new products such as soft gels and vape-ready CBD oil help profit margins.

Rival Canadian producers Tilray (TLRY) and Cronos Group (CRON) are expected to report their results on Tuesday. Canopy Growth (CGC) reports on Thursday.

Correction: An earlier version of this story misstated the amount of cannabis sold in the prior quarter

Write to Alessandra Freitas at alessandra.freitas@barrons.com

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