Aurora Cannabis Appears to Be the New Canadian Cannabis King

With net cannabis revenue of $94.6M in Q4, Aurora Cannabis Inc. (TSX:ACB) has become the new market leader in Canada

SmallCapPower | September 17, 2019: Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB) reported Q4/19 financial results after markets closed on September 11, 2019. Results were highlighted by total revenue of $98.9M, with $94.6M of cannabis net revenue. Total revenue missed management guidance of between $100M – $107M, but net cannabis revenue meet guidance of between $90M and $95M. Guidance missed expectations and ACB traded down 8.9% the day of the release to close at C$7.75. However, with net cannabis revenue of $94.6M, Aurora Cannabis has surpassed Canopy Growth Corp (TSX:WEED) as the Canadian market leader in terms of revenue.

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Figure 1: Aurora Cannabis Inc’s Gross Margin Profile

Source: Company Reports, Ubika

Gross margins remained flat quarter-over-quarter. Aurora Cannabis Inc’s gross margins for the quarter were 56%, unchanged from the previous quarter but below the consensus estimate of 60%. Importantly, ACB’s cash cost per gram decreased to $1.14/gram (was $1.42/gram). The Company said this decrease was due primarily to the ramp-up of the 800M sq. ft (100,000+ kg/year) Aurora Sky facility.

Figure 2: Aurora’s Net Cannabis RevenuesSource: Company Reports, Ubika

Revenue increased 51.8% sequentially. Aurora Cannabis reported total revenue of $98.9M and net cannabis revenue of $94.6M, along with an adjusted EBITDA loss that slipped to $11.8M. Both metrics missed analysts estimates of net revenue of $103.5M and an adjusted EBITDA loss of $8.0M. During the quarter, kilograms sold was up 94% to 17,793 kg. Net cannabis revenue increased 45.3% to $94.6M (was $65.1M in Q3/19). Average selling price slipped to $5.32/gram (was $6.40/gram in Q3/19). ACB reported that the decrease in average selling price per gram was due primarily to $20.1M (~5,600 kg) in wholesale sales, which was sold at an average price of $3.61/gram. Management indicated that this was a one-off wholesale sale of trim to a cannabis extractor and may not be repeated in subsequent quarters. International medical sales were up 12.5% to ~$4.5M, from ~$4.0M during Q3/19. Canadian medical sales remained stable at $25.2M (was $25.1M in Q3/19), while registered patients increased 10% to 84,729. We believe the increase was likely due to an influx of medical patients from CannTrust (TSX:TRST).

Figure 3: Cannabis Harvested (kilograms): Aurora CannabisSource: Company Reports, Ubika

Ready for Cannabis 2.0 with $113.6M in inventory. With a solid inventory position, Aurora Cannabis has positioned itself to be ready for the legalization of cannabis edibles and derivative products. Aurora harvested 29,034 kg of cannabis during Q4/19, up 86.2% QoQ. We expected Aurora’s harvest cannabis to increase sequentially as its additional cultivation assets come online. Aurora Cannabis Inc’s ~1.6M sq. ft Aurora Sun greenhouse facility is expected to begin production during H1/20. Aurora Sun has an estimated annual production capacity of 230,000 kg.

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Key takeaways. While Aurora Cannabis missed guidance, we note that it was only a slight miss of $1.1M, as management guided between $100M and $107M in total cannabis revenues. While the miss was not that large, it could dampen investor confidence in regard to future management guidance. However, cannabis revenues were in-line with guidance at $94.6M (guidance was for $90 to $95M). Of note, this solidifies Aurora Cannabis as a market leader among Canadian cultivators, followed by Canopy Growth Corporation (TSX:WEED) with $90.5M in revenue (Q1/20) and MediPharm Labs (TSX:LABS) with $31.5M in revenue (Q2/19). With a strong inventory position of $113.6M, Aurora is setting itself up to become a dominate player once Cannabis 2.0 arrives in Canada.

Aurora Cannabis stock ended Monday’s trading session more than 7% lower at C$7.26. Aurora trades at a market capitalization of C$7.4B. Aurora Cannabis is currently trading at 2021E EV/sales and EV/EBITDA multiples of 9.8x and 33.7x, a premium to large-cap Canadian peers, which trade at multiples of 5.3x and 24.4x, respectively.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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