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Since Canada licensed recreational marijuana sales last October, Aurora Cannabis (NYSE: ACB) Inventories fell about 44%, due to unsatisfactory sales and heavy operating losses. Recent earnings results for the period ending June 30, 2019 have disappointed analysts who expected more, but investors should not give hope for the moment.
Despite high earnings expectations, positive cash flows are forthcoming. These are the top four investors investors should know.
1. Reduce losses
Aurora Cannabis is still losing money, but it has taken a significant step in the right direction in the fourth quarter of its fiscal year, which ended June 30, 2019. While and expenses recorded in the last three months of fiscal 2019 remain stalled For the full year of fiscal year 2020, shareholders will not have to complain.
| Line element | Fiscal year ended June 30, 2019 | Q4 annualized tax | Projected increase (decrease) |
|---|---|---|---|
| Net revenue | CA $ 248 million | CA $ 395 million | 68% |
| Gross margin (before FV adjustment) | CA $ 135 million | CA $ 220 million | 63% |
| General and administrative expenses | CA $ 272 million | CA $ 292 million | seven% |
| Operating expenses | CA $ 474 million | CA $ 444 million | (6%) |
Data source: Aurora Cannabis. Q4 = fourth quarter; FV Adj. = fair value adjustments; SG & A = sales, general and administration.
Over the past year, Aurora's operating expenses have exceeded the gross profit available to cover these expenses by $ 339 million, which is simply not sustainable. The mere repetition of the results of the last three months without any growth in fiscal year 2020 would result in an operating loss of 49 million Canadian dollars, which is much easier to swallow than previous losses.
Source of the image: Getty Images.
2. Economies of scale
It seems like a lot more topline revenue will eventually hit the bottom line in the next few quarters. The cash cost to produce one gram of cannabis fell to 1.14 Canadian dollars, compared with 1.42 Canadian dollars in the previous three months.
The new contributions from two of Aurora's gigantic automated production facilities came on the scene earlier this year and the difference is huge. Both facilities increased the company's overall production capacity by a factor of nine to 150,000 kilograms per year.
3. The price is better than it seems
The average Aurora selling price decreased by $ 1.08 per gram to settle at $ 5.32 per gram in the fourth quarter of the year, largely because of the rise spectacular bulk cannabis sales, which increased from $ 2.1 million in the first three months of 2019 to $ 20.1 million in the quarter ended June 30, 2019.
Aurora recorded an average selling price of CAN $ 3.61 for bulk cannabis, $ 5.14 for consumer cannabis and CAD $ 8.51 for medical cannabis. Despite the wide price range, the reported gross margin for bulk sales, 61% was actually above margins on sales to consumers and health professionals.
Source of the image: Getty Images.
4. Regardless of the consumer price decline
Consumer marijuana sales increased 52% from the previous quarter to $ 44.9 million, but sales of dried flowers accounted for most of the increase. As a result, the average net selling price of consumer segment products decreased by $ 0.34 from the previous quarter.
The products extracted from the marijuana flower are generally much more expensive than the flower itself, but they are also much more expensive to produce. That's why the gross profit margin on cannabis consumption Pink from 50% in the previous quarter to 55%, despite a fall in the average selling price.
A good pot stock to buy now?
Aurora Cannabis and many other marijuana stocks have recently fallen, but this is not the right time to start a long position. The company may be able to generate operating income in the coming quarters, but this profit will not be large enough to support a market capitalization of $ 6 billion in the foreseeable future.
In the six months between December and June, Statistics Canada recorded dried flower sales up 37% to 119,700 kg annualized, and cannabis oil sales up 23%. to reach 115 400 liters annualized.
Do not forget that Aurora is already capable of producing 150,000 kg of dried flowers a year and that it is not the only Canadian producer to be able to provide more flowers than the whole country seems to want in buy. There are literally dozens of licensed producers competing for an internal market that are simply not important enough to support Aurora's assessment.
Perhaps the launch of cannabis extracts and popular vape pens will divert some customers from an illicit market that has been providing popular snippets for years. Until proven otherwise, these products are not going to just cannibalize sales of less popular products, but it's best to watch this remote security show.
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