Aurora Cannabis Financial Results Give Investors Pause

In this market news, Aurora Cannabis Inc. (TSX:ACB), one of the Canadian marijuana stocks, said its sales and marketing expenses have doubled over the past three months

SmallCapPower | November 16, 2018: Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB), one of the Canadian cannabis stocks, reported Q1 2019 financial results on November 12, 2018. Revenues came in 260% higher at $29.7 million compared to $8.3 million in corresponding quarter last year. The increase was on the back of higher patients, increased product availability through scale up of operations from the CanniMed and MedReleaf acquisitions, an increase in the average net selling price of dried cannabis, development of international markets, the commencement of the Canadian adult-use market, and product diversification. Pro-forma Q1 2019 revenue, which includes operations from MedReleaf (consolidated as of July 25, 2018), Anandia (consolidated as of August 8, 2018) and Agropro (consolidated as of September 10, 2018), came in at $35.7 million.

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Shares of Aurora Cannabis eased nearly 2% at the close of trading Monday following the announcement. A few investors were likely concerned about the 59% quarter-over-quarter increase in general and administrative expenses, along with the nearly 100% rise in sales and marketing expenses from the previous quarter.

Aurora Cannabis did post healthy gross margins of 70%, up 12% YoY, though down slightly by 4% on a QoQ basis. The increase can be attributed to a higher average selling price per gram of dried cannabis ($8.4 in Q1 2019 versus $7.3 in Q1 2018), in addition to a higher proportion of cannabis oil in the Company’s sales mix ratio.

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In Q1 2019, cash cost of sales per gram of dried cannabis sold decreased by 12.0% YoY and cash cost to produce per gram of dried cannabis sold decreased by 22.5% YoY. The decrease in cash cost to produce per gram was due primarily to more efficient production processes rapidly implemented post-acquisition at the Company’s subsidiary CanniMed.

The number of active registered medical patients grew to 67.5 million in comparison to 43.3 million in Q4 2018 and 19.3 million in Q1 2018. Kilograms produced and sold in the quarter surged 395% and 201% on a YoY basis, respectively.

Aurora Cannabis CEO Terry Booth said, “We continue to successfully execute our differentiated and diversified strategy committed towards domestic and international expansion in the medical cannabis market, adult consumer use sales, production scale-up, innovation, plant and medical research, and product development. The commencement of adult consumer use sales in Canada has been very successful for Aurora, with strong performance across all product categories and brands. Our initial roll-out success demonstrates how our high-quality Aurora Standard products and well-positioned brands have resonated strongly with the consumer market and our preparedness for the logistical challenges in effectively bringing our products to market. Given the strong unmet consumer demand evident across Canada, we are confident that our rapidly increasing production capacity will result in continued acceleration of revenue growth.”

Net income for Aurora Cannabis increased to $104.2 million, compared to a net income of $79.3 million in Q4 2018 and $3.6 million in Q1 2018. The increase was attributable primarily to the unrealized non-cash gain on derivatives and marketable securities, which was partially offset by increased finance costs, share-based payments, acquisition and project evaluation costs. Net cash and cash equivalents on hand amounted to $147.8 million as at Q1 2019 compared to $89.2 million in Q4 2018.

Aurora Cannabis is well positioned to capitalize on the growing recreational marijuana trend (both medical and recreational), and has a broad product portfolio, along with a strong patient base. The Company is rapidly accelerating production and expects to ramp to full 100,000 kg per annum capacity over the coming months. The Company anticipates reaching a production run rate of approximately 150,000 kg per annum early in calendar 2019, scaling up subsequently to over 500,000 kg per annum (excluding additional capacity through the pending ICC Labs acquisition) through further “Sky Class” facilities, Aurora Sun and Aurora Nordic. Aurora Cannabis stock trades at a market capitalization of C$8.2 billion with a price-to-book multiple of 3.2x.

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

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