Aurora Cannabis Reveals Real Cost of Rising Revenue

Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB), one of the Canadian marijuana stocks, reported its second-quarter financial results this week

SmallCapPower | February 14, 2019: Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB), one of the Canadian cannabis stocks, announced its second-quarter financial results after Monday’s close. The Company delivered strong growth in revenues for Q2 on the launch of recreational sales but the bottom line disappointed due to losses from derivative instruments. For the second quarter ended December 31, 2018, revenue jumped 83% sequentially and 363% YoY to $54.2 million, at the upper end of the guidance given by the Company last month, driven primarily by consumer (recreational) cannabis sales of $21.6 million, representing 40% of net revenue. As per Aurora Cannabis, its consumer sales represented ~20% of all consumer cannabis sales in Canada. Continued growth in the Canadian and international medical cannabis sales, up 8% sequentially to $26.0 million, also contributed to its total revenue growth.

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Gross margins on cannabis sales fell 16 percentage points sequentially to 70%, due primarily to lower average selling price per gram of dried cannabis, excise taxes on medical cannabis, and a lower proportion of cannabis oil sales in the sales mix. Cash cost per gram of dried cannabis increased to $1.92 in Q2 2019 from $1.45 in Q1 2019, due primarily to ramp-up and optimization costs associated with scaling-up Aurora Sky to full production.

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SG&A and other operating expenses remained steady compared to the first quarter. Consequently operating loss for the second quarter was $80.2 million compared to $112 million in the first quarter. However, Aurora Cannabis reported a wider net loss of $240 million, or $0.25 per diluted share, significantly higher than the consensus $0.06 loss per share, due primarily to non-cash expenses of $190 million associated with mark-to-market losses on derivatives and impairment of investment in associates. Excluding these, net loss would have been ~$50 million, or $0.05 per diluted share. The Company attributed the loss to “operating inefficiencies” that led to higher labour costs. These costs were also likely impacted by the lack of skilled labour in this rapidly-expanding sector.

Looking ahead, Aurora Cannabis expects significant growth in revenue over the next 12 to 18 months, driven by scale-up of production available for sale to both Canadian and international markets, expected to reach 25,000 kgs in Q4 FY2019, significantly higher than 7,822 sold in the second quarter. Consequently, management is guiding for positive sustained EBITDA beginning Q4 FY2019 on the combination of substantial revenue growth and low cost of production.

Shares of Aurora Cannabis ended Tuesday $0.03 lower at $9.47. Aurora Cannabis stock trades at market cap of C$9.6 billion.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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