Aurora Cannabis: Cutting Costs, Remains Risky

Aurora Cannabis (NASDAQ: ACB) engages in the production, distribution, and selling of cannabis products.

It also produces and sells indoor cultivation systems and hemp-related food products. The company was founded by Terry Booth and Steve Dobler on December 21, 2006, and is headquartered in Edmonton, Canada.

Shares of Aurora Cannabis have losses of approximately 42% year-to-date. I am bearish on ACB stock. I see consistent weakness in business operations, net losses and declining revenue growth, factors that are not supportive for the stock.

Aurora Cannabis Business News

Aurora and 22nd Century Group recently announced an agreement to license biosynthesis intellectual property to Cronos Group. This is expected to be a positive factor in the advancement of research and development on the biosynthesis of cannabinoids.

“We are deeply interested in the evolution of cannabinoids, and this is a promising step toward the commercialization of cannabinoid products using biosynthesis,” said Miguel Martin, Chief Executive Officer of Aurora. “The long-term potential for rare cannabinoid molecules produced through biosynthesis is incredibly promising given their efficient production methods, and potential therapeutic benefits and utility in health, wellness, and consumer products.”

Aurora also announced a manufacturing agreement with the Valens company, a cannabis consumer products company, having vast expertise in manufacturing cannabinoid-based products to create a new seasonal offering in the mint category.

On November 8, Aurora Nederland B.V., a wholly owned indirect subsidiary of the company, agreed to invest in a significant equity stake in Netherlands-based Growery B.V.

It is notable to mention that Growery B.V is one of the few license holders entitled to participate in the Controlled Cannabis Supply Chain Experiment (the “CCSC”) in the Netherlands.

Q1 2022 Results

Aurora Cannabis reported that its transformation plan is underway, with more than C$33 million in annualized run-rate cost savings, and a growth of about 10% to C$60.1 million compared to $54.8 million in Q4 2021 of total cannabis net revenue.

In the past eight quarters, only in the latest quarter did the company report a beat on EPS. The GAAP EPS figure of -C$0.05 was better than the forecast of -C$0.20.

Year-over-year, Aurora Cannabis posted lower net revenue, higher gross profit, lower operating expenses, and a lower net loss.

The firm stated that the pandemic has impacted revenue in the Canadian consumer market, especially in Ontario.

Fundamentals

Sales growth slowed to 9.44% in 2020, compared to 344.84% in 2019, and turned negative to -8.73% in 2021. EBITDA has been negative in all years within 2017-21.

Cash burn is another red flag. Aurora Cannabis has a trend of negative free flow in 2017-21. In 2021, this was ($263.66 million), compared to a figure of $440.85 million for cash reported on its balance sheet.  

Aurora Cannabis revenue per share is in decline over the past 12 months, and shareholders have been diluted in the past year with total shares outstanding growing by 7.9%, according to Simply Wall Street.

Although the fundamentals do not inspire analyzing a five-year trend, Aurora Cannabis is making the right moves to cut costs and achieve profitability over the next quarters and years.

For now, it is hard to imagine Top Analysts including ACB stock among Top  Penny Stocks. Typically a penny stock trades for less than $5 per share, which is not that far away from the latest Aurora Cannabis share price.

Wall Street’s Take

Turning to Wall Street, Aurora Cannabis has a Moderate Sell consensus based on four Holds and two Sells assigned. The average Aurora Cannabis price target of $6.38 represents 16.7% upside potential.

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Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.