Pot giant Aurora Cannabis (TSX:ACB)(NYSE:ACB) saw its shares slide 9 per cent Thursday after it posted revenues that not only missed analyst’s expectations, but also fell short of the company’s own guidance.
The Edmonton-based cannabis producer estimated last month its fourth quarter revenues for the period ended June 30 would fall between $100 million and $107 million. But the company reported Wednesday $98.9 million net revenue for the quarter. Even though revenues surged up from $19.1 million a year ago, it also fell below the $108.25 million that analysts expected at financial markets firm Refinitiv.
Cam Battley, chief corporate officer at Aurora, told The Canadian Press the revenue “shouldn’t have happened” and noted the lower figures were due to a decline in non-cannabis revenues such as patient counselling. He did, however, remain upbeat about the firm’s rising revenue
“This is the biggest revenue that any company in any sector has recorded,” said Battley on Thursday morning’s conference call.
By comparison, rival pot heavyweight Canopy Growth (TSX:WEED)(NYSE:CGC) posted net revenue of $90.5 million in its most recent quarter, which was a 4 per cent decline from the last quarter as the company’s recreational pot sales continued to slump.
Aurora still seeking profitability
Shares of Canopy tumbled on its Q1 results as it also posted an adjusted EBITDA (earnings before interest, taxes and depreciation) loss of $92 million. Investors have grown weary of the large Canadian producers inability to post profits and have been punishing those who continue to report losses.
Aurora’s August guidance also predicted it was “on track” towards profitability, but the company posted an adjusted EBITDA loss of $11.7 million in the quarter. It blamed the projection miss on the slow rollout of retail locations across Canada, especially in the country’s largest pot market in Ontario.
“We’re excited that Ontario is licensing new stores…but there should be hundreds,” said Glen Ibbott, the firm’s chief financial officer.
Aurora now predicts it will more likely reach positive EBITDA territory by fiscal 2020.
“If there were a broader retail infrastructure, and more stores available in Canada and open, that pretty likely would have made the difference toward us reaching that milestone,” said Battley.
It was interesting to note, Aurora didn’t report earnings in its release. Instead, the company’s fourth-quarter net loss of $2.3 million was found on page 110 of the pot producer’s financial filing.
Aurora boasts its production scale
Although Aurora missed expectations in more ways than one, revenues did rise in Q4 more than 50 per cent from the $65 million in the third fiscal quarter. Much of that increase came from the company’s surging sales of cannabis.
The major producer sold 17,793 kilograms of cannabis to the recreational and medical markets, a sharp rise from the 9,160 kilograms sold in the previous quarter. Production in total for the quarter came in over 29,000 kilograms.
The company’s giant Aurora Sky facility, located near Edmonton International Airport, produced cannabis at a cost of $1 a gram, which helped it reduce overall production costs to $1.14 a gram, Aurora said.
“Our best in class cultivation methods allow us to grow consistent, high-quality cannabis at scale. Because of this, we’ve delivered solid revenue growth in the fourth quarter,” said Terry Booth, CEO of Aurora in the press release.
In a recent note, Canaccord Genuity pot analyst Matt Bottomley said, “during the quarter, we expect the company continued to progress towards reaching an annualized output capacity of 150,000 kilograms.”
Last month, Aurora closed its acquisition of Hempco Food and Fibre, which helped the company create Aurora Hemp, an integrated operating unit to execute its global hemp strategy.
Hempco provides the pot producer access to its low-cost, high-volume raw hemp material for the extraction of primarily CBD, that Aurora said will help it enter the U.S. CBD market.
In its Thursday earnings call, Battley said the company might make a U.S. acquisition soon to grow its presence south of the border. But it is only interested in operations that are legal at the federal level.
But Aurora is also looking ahead for the launch of Cannabis 2.0 products in Canada by mid-December. The company said it is preparing to produce items like vape pens, gummies, mints and chocolates.
When asked about the recent outbreak of mysterious vaping-related illnesses in the U.S., Battley said it appears the suspected products are from black market vape cartridges. He added Canadian vapes will be rigorously tested and regulated by Health Canada.
Cash flow concerns
Another concern from analysts is how Aurora will fund its derivative product rollout and its U.S. expansion.
Although Aurora recently sold its shares of The Green Organic Dutchman (TSX:TGOD) for close to $87 million, Ibbot, the company’s financial chief, said the company will continue its heavy capital spending hinting it may have to issue shares to do so.
Stifel analyst Andrew Carter wrote in a Thursday note that tapping the capital markets “is likely to weigh on investors sentiment.”
To make matters worse, MarketWatch reports Aurora has roughly US$2.4 billion worth of goodwill on its balance sheet. It’s hard to pin down when the company will write down the value of its assets.