Aurora Cannabis (ACB) is set to report fourth quarter fiscal 2020 earnings results after the closing bell Tuesday. Marijuana stocks have largely underperformed the market over the past year, evidenced by the 53% twelve-month decline of the ETFMG Alternative Harvest ETF (MJ), compared to the 10% rise for the S&P 500 index during that span.
Aurora stock is down 73% year to date, including a loss of 32% just in the past thirty days. It has been one of the hardest hit names. When expanding that horizon over the past one year and three years, its shares are down 90% and 74%, respectively. Investors want to know whether pot can be profitable, particularly for Aurora which, due to its bold expansion strategy, was once a favorite among pot investors?
Vivien Azer, analyst at Cowen and Company believes political roadblocks are the biggest factor impacting the cannabis industry. "We believe 2020 will be remembered more for symbolic votes on cannabis than for any substantive change in the law,” Azer noted last week. “Despite broad House support for various cannabis bills, Senate Majority Leader Mitch McConnell is an obstacle that we do not believe can be overcome in the next several weeks.”
This would seem to be an ominous sign for the entire pot industry which has suffered through gross margins weakness, along with high operating costs as the battle over legalization persists. In the case of Aurora, which has faced various pandemic-induced headwinds such as store closures, it is also dealing with profitability issues related to what now appears as “questionable timing” related to its acquisition spending spree and the adverse effect of those decisions.
In the three months that ended August, Wall Street expect the Edmonton, Alberta-based company to report a per-share loss of $7.44 on revenue of $54.41 million. This compares to the year-ago quarter of 0 cents per share on revenue of $74.98 million. For the full year, the loss is expected to be $17.31 per share, while full-year revenue is expected to rise 11.18% year over year to $208.89 million.
In the third quarter the company beat on both the top and bottom lines, reporting a smaller-than- expected loss as customers in the United States and Canada stockpiled cannabis ahead of lockdowns. Cannabis was deemed an essential service in several provinces and states across Canada and the Unites States. The third-quarter adjusted third quarter loss fell to $36.18 million. Third quarter revenue, excluding provisions of $2.9 million, rose 18% sequentially to $78.4 million.
This was the company’s first full quarter that included results from its “cannabis 2.0 portfolio,” which includes vapes, edible gummies, chocolates and beverages. The company sold 12,729 kilograms of cannabis during the quarter, which was up 39% year over year. The company said it was on track to be profitable in the next fiscal year and doubled down on its plans to keep capital expenditure below $100 million in the second half of the year.
On Tuesday if Aurora can show profit improvements, low cash burn rate, improved return on investments, the stock may yet rebound. While some estimates still suggest that the pot industry can grow between $50 billion and $75 billion in annual revenue in the next ten years, it’s all predicated on the battle over legalization.
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