Profits have been very elusive for the cannabis industry, but Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) is looking to change that. The big marijuana company is looking to tighten up its ship as it looks to find itself on the right side of breakeven. In an interview with BNN Bloomberg, Aurora Chairman Michael Singer reportedly said that his company is “primed to become profitable this quarter.”
That’s an ambitious goal for a company that incurred a $240 million loss in its most recent quarter. Although that was a bit inflated thanks to investment-related losses, at the operational level things don’t look a whole lot better. It still reported an operating loss of more than $80 million for the quarter and over the past six months it has incurred losses totalling $192 million.
If Aurora expects to post a positive net income number, that could simply mean that The Company expects to have some very strong investment returns. It hasn’t been uncommon for a cannabis company to incur big losses from operations only to get boosted up thanks to a gain on an investment on something completely unrelated to its day-to-day activities.
Another thing for investors to consider is consistency. Even if Aurora will be able to turn a profit next quarter if it’s just a one-time profit and losses are likely to follow in future periods, then the quality of the earnings will not be very strong. This goes back to being able to turn a profit operationally, because if it’s not repeatable then it likely means it’s a result of other factors. And given the growth that The Company is chasing in other parts of the world, I’m not terribly optimistic that Aurora will be able to achieve a strong bottom line with any regularity.
Why Investors Should Look at More Than Just Profits
An argument could be made that it’s cash, not accounting income that investors should be focused on. There’s a lot of opportunity for noise and manipulation in the income statement that can make it lose value. Whereas looking at cash flow gives investors much more of an insight into the company’s operations.
Over the past six months, Aurora has used up $133 million in operating activities and an additional $45 million from investing, including the purchase of plant, property and equipment. At $178 million, that’s a lot more cash used up than the $135 million net loss that Aurora incurred during that time.
If a company isn’t generating free cash flow and is in the negative after operating and investing activities, that’s a bad sign as it indicates that additional funds need to be raised, either through the issue of more shares or debt.
Bottom Line
Aurora may end up posting a profit next quarter, but investors should consider the context and look beyond just one line to tell the whole story. However, it’s a good sign nonetheless that Aurora is paying attention to its bottom line and not just dismissing it in the name of growth.
Year to date, Aurora’s stock has climbed by more than 80%.
