Will Aurora Become A Global Medical Marijuana Leader? Analyst Opines Ahead Of Q4 Earnings

Canadian cannabis giant Aurora Cannabis Inc. ACB ACB reported a plunge in third-quarter sales months ago, in addition to a negative adjusted EBITDA of CA$24 million ($28.3 million).

At the time, Cantor Fitzgerald’s analyst Pablo Zuanic lowered his price target to CA$9.00 from CA$11.25 while keeping a “Neutral” rating on Aurora’s stock.

Zuanic further asked whether exiting from domestic recreational cannabis would make sense for the company.

Four months later, the company is about to report its fourth-quarter results after the close on Tuesday, Sept. 21, and the Zuanic seems to still have doubts.

The Analyst

In his latest note on Thursday, Zuanic kept a Neutral rating on Aurora’s stock but reduced its price target to CA$8.3 from CA$12 due to decreased sales estimates and sectoral derating. He estimates that domestic medical marijuana sales and exports now comprise close to 90% of earnings as the company continues to show undisputed dominance in both of those areas.

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Still, a "consistent QoQ mid-teens drop in domestic recreational sales" remains a concern for the analyst. In the third quarter, the company reported one of the worst results of loss per share in the domestic recreational cannabis market.

That said, Zuanic is not expecting a meaningful rebound in recreational sales in the fourth quarter either.

Should Aurora Exit Domestic Recreational Market?

In fact, Zuanic still asks “how the stock would trade if Aurora just excited domestic rec, and it positioned itself as a global medical MJ specialist?”

Over the last year, the company has undertaken its so-called ‘business transformation plan’ following the retirement of former CEO Terry Booth. Its latest international initiatives included a nearly CA$8 million weed shipment to Israel and an extension of its collaboration with a United Kingdom-focused biopharmaceutical company Grow Group PLC, through its subsidiary Aurora Germany GmbH. The two companies inked a two-year market access services agreement for the U.K.

Moreover, in August, Aurora Germany GmbH and Ethypharm reported delivering their initial shipment of cannabis to the French medical cannabis pilot program, which is poised to launch soon.

“The company has greater international optionality than the Canadian LP average, in our view, and it remains a solid #1 in domestic medical,” Zuanic added.

In the meantime, Aurora reported several consecutive quarters of adjusted EBITDA loss, prompting the analyst to cut his estimates under the assumption it will achieve a positive EBITDA in its 3-year projections.

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Aurora reported having $430 million in cash at the end of May, of which it intends to use $300 million at the market equity facility to fund merger and acquisition initiatives, not to support ongoing operations.

“Cash burn and ongoing negative EBITDA, besides rec market share erosion, all justify the ACB stock derating in the last year,” Zuanic said, adding that the company’s shares are “down 29% in the last three months, in-line with the Canadian LP group average.”

Price Action

Aurora’s shares traded 0.90% lower at $6.62 per share after the market close on Thursday.

Photo: Courtesy of Sigmund on Unsplash