Aurora Cannabis says its killing it in Canada, so why arent analysts excited? – Yahoo News Canada

Aurora Cannabis says it\s \killing it\ in Canada, so why aren\t analysts excited? - Yahoo News Canada
Forget Aurora Cannabis (TSX:ACB): Buy This Marijuana Stock Instead
Speaking on a conference call with analysts on Thursday, chief corporate officer Cam Battley said Aurora is killing it in the Canadian consumer market with leading share.

The Edmonton-based company now commands a 22 per cent slice of the recreational market, up from 19 per cent previously, according to GMP Securities.

Aurora reported $98.9 million in net revenue for the quarter, which missed the $100 to $107 million range the company had projected. Aurora blamed the miss on ancillary businesses such as analytical testing and patient counselling.

The company also missed its target of achieving positive EBITDA in its latest quarter, reporting a loss of $11.7 million, an improvement from a loss of $36.6 million in the third quarter.

Aurora’s net revenues were up 52 per cent, and production costs, measured in cash cost per gram, went down by 20 per cent from the previous quarter to $1.14 per gram from $1.42. The Sky facility, however, was able to grow cannabis at an even cheaper $1 per gram, according to the report.

Core cannabis revenues for the three-month period ended June 30 came at $94.6 million, roughly 60 per cent higher than the previous quarter, and the largest quarterly core cannabis revenue figure that any producer has recorded.

However, management warns quarter-to-quarter sales volumes and revenues may be volatile given the unpredictable expansion of retail stores in key regions like Ontario.

“The work out of Sky is exciting. This is a very big deal for Aurora,” said chief corporate officer Cam Battley in a phone interview. Counting six growth cycles per year, Sky is achieving higher yields than the company anticipated, and hasn’t lost any crops, he said.

We specifically for us just want to call out the fact that there are constraints on the consumer system right now, and the provinces are starting to show that as well. We have seen in July and August where theyre trying to work through some of the inventories that they have, and slowed their buying, Aurora chief financial officer Glen Ibbot said on the call.

“We anticipated that there would be a bigger retail footprint in Canada. More stores open equals more revenue,” said Battley. Executives said the company turning a profit next year could depend on the timing and approval of new retail outlets across the country.

We expected [growth] to pick up and continue to pick up through the next quarter, but…may take a bit of a pause just due to industry dynamics.

Were anticipating that there may be a bit of a plateau between now and the advent of the cannabis legalization 2.0 products, anticipated somewhere around the end of the year, Battley added, referring to the release of edibles, vapes and other cannabis products expected to hit the market in December.

Aurora’s revenue growth was mostly fuelled by additional production capacity and supply available for sale from Aurora Sky, Aurora River in Bradford, Ont., and Aurora Ridge in Markham, Ont., according to the quarterly report.

Canaccord Genuity analyst Matt Bottomley said Auroras record-setting quarter was overshadowed by the headline revenue miss.

“We set out to be a high-margin company, and in this sector that’s been a difficult thing. So maintaining those margins, while growing and expanding our international footprint has been huge for us,” said Battley.

The company expects to see growth rates plateau into the coming quarters before reaccelerating heading into 2020, he wrote in a research note. Although the company believes that inflecting into adjusted EBITDA territory is still a near-term event, the company appears less certain if it will be able to cross this threshold by the end of the calendar year.

Bottomley lowered his full-year 2020 gross revenue and adjusted EBITDA estimates. He maintains a speculative buy rating on the stock with an unchanged $13.50 price target.

The second wave of legalization is likely to “disproportionally” benefit larger and more sophisticated operators like Aurora who have invested in high-quality product development, said Battley.

GMP Securities analyst Ryan Macdonell notes Auroras quarterly revenue would need to top $157 million to achieve break-even EBITDA, given current selling, general and administrative expenses.

The company hit most of the quarterly targets it laid out in August, but fell just shy of one major milestone, reporting $98.9 million in net revenue rather than the anticipated $100 million-$107 million.

He lowered his target price to $12 from $15, dropped revenue and profitability forecasts, and maintained a buy rating.

“It’s outperforming, and we think that we can take that even lower,” said Battley, who added they’d like to get it “well below a dollar a gram.”

BMO Capital Markets analyst Tamy Chen said Auroras share price remains elevated despite execution uncertainties, prompting her to cut her price target to $9 from $11.

“We have invested the time to study consumer habits in legal U.S. markets, which have driven the development of products that consumers will desire,” he said.

We have reduced our F2020 EBITDA forecast to a loss of $81 million from positive $33 million to reflect the reset in our revenue projections and our view that initial manufacturing costs for value-added products may pressure margins further due to the associated learning curves in the ramp period, Chen wrote in a research note.

Today, Innovative Industrial Properties (IIPR) board announced a quarterly dividend of $0.78 for the third quarter. The companys third-quarter dividend represents a rise of 30% from its second-quarter dividend and a rise of approximately 123% from the third quarter of 2018. The companys dividend yield stood at 3.5%, and its stock was trading at $88.39 on September 12. The company will pay its dividend on October 15 to shareholders of record as of September 30. According to the company, it has hiked its dividend five times since going public in December 2016.

Toronto-listed Aurora shares climbed 2.32 per cent to $7.93 at 2:51 p.m. ET. New York-listed shares added 1.44 per cent to $5.97.

After falling approximately 9.0% yesterday, Aurora Cannabis (ACB) was trading 0.9% higher at 2:00 PM ET. The company reported its fourth-quarter earnings on September 11 after the market closed. For the quarter, the company reported revenue that was lower than its guidance and analysts expectations, which led to a fall in its stock price. For more on Auroras fourth-quarter performance, read Aurora Cannabis Stock Fell Approximately 9%: Time to Buy? Despite yesterdays fall, Aurora has returned 14.3% YTD as of September 12.

The Motley Fool Canada Cannabis Stocks Forget Aurora Cannabis (TSX:ACB): Buy This Marijuana Stock Instead

Canopy Growth (CGC) (WEED) reported its first-quarter earnings results on August 14. The company missed on both its top and bottom line estimates, which led its stock to fall 17.6% from August 14 to September 12. However, today, the company was up 3% as of 2:00 PM ET. Investors appear optimistic about the second phase of legalization, or Cannabis 2.0, which is expected to happen later this year.

The marijuana sector presents a rare opportunity for investors. With sales and revenues going through the roof, some companies will win big in the future and reward their shareholders in the process. However, many others will be losers, and it isn’t easy to know which is which at the moment.

Today, CNBC reported that US retail sales for August increased 0.4% compared to an increase of 0.8% in July. It appears that investors werent impressed by Augusts retail sales growth, as the US market looked subdued today. At 2:00 PM ET, the S&P 500 Index was flat, while the Dow Jones Industrial Average was up 0.2%. Cannabis ETFs, which fell yesterday, showed some recovery today.

Some investors looking to profit from this opportunity turn their attention to the companies with the most brand recognition, such as Aurora Cannabis (TSX:ACB)(NYSE:ACB).

Right now, Canada allows cannabis to be sold as dried leaves, oils, and gels. The second phase will legalize cannabis derivative products, including vapes, mints, gummies, and chocolates. Investors hope the second phase of legalization will boost Canopys sales. To learn more about Canopys growth initiatives, read Canopy Growth: Key Takeaways from Its Investor Call.

But while Aurora and other brand names might be worth considering, slightly lesser-known pot firms are often stronger picks. Let’s consider one mid-cap marijuana company that looks very promising: Green Thumb Industries Inc (CNSX:GTII). 

The hike in IIPRs dividend appears to have increased investors confidence. It was up 5.2% today at 2:00 PM ET. YTD, the company has returned 94.7% as of September 12. The company reported strong second-quarter earnings on August 7, with its revenue outperforming analysts expectations. To know more, read Why IIPRs Q2 Earnings Came in Strong.

Despite Canada having more welcoming marijuana laws, the U.S. is the largest cannabis market in the world. Green Thumb has already built a presence in the U.S., including in the single most populated U.S. state, namely California.

The ETFMG Alternative Harvest ETF (MJ) and the Horizons Marijuana Life Sciences Index ETF (HMMJ) were trading 0.5% and 1.0% higher, respectively. Also, the majority of the cannabis stocks were trading in the green.

The Golden State is one of the dozen (or so) in which both medical and recreational uses of pot are legal. Green Thumb also operates in its home state of Illinois, which happens to be one of the latest states to legalize recreational marijuana.

On September 12, natural gas prices rose 0.9% to $2.574 per MMBtu, and the EIA reported its natural gas inventories for the week that ended on September 6.

Overall, Green Thumb operates across 12 US states, has over 30 stores and 13 manufacturing facilities, and holds licenses for 95 retail locations. With plans to open even more new stores by year-end, the company’s presence will likely continue growing. 

Jim Chanos, the founder and president of Kynikos Associates, is a long-time short-seller of Tesla stock. Tesla stock has fallen 17.5% in the last year.

Green Thumb’s financial results look competitive by industry’s standard. During its latest reported quarter — Q2 2019 — Green Thumb posted revenues of about $44.7 million — a more than 220% increase year over year.

The company’s gross profit margin also increased to 52%, up from 46% year over year. Sequentially, Green Thumb’s revenues increased by about 60% and its gross profit margin grew by 5%.

Short-seller Citron Research noted that Generac Holdings could challenge solar microinverter makers Enphase Energy and SolarEdges duopoly.

Note that for the second quarter in a row, the company was able to post record high revenue figures, and its sequential revenue growth was unprecedented. Green Thumb pointed to several factors to explain this performance, including increasing store traffic and a few strategic acquisitions. 

Barnes & Noble Educations (BNED) financial struggles suggest that its digital transformation still hasnt taken off. But is it too late?

Like many of its peers, though, Green Thumb isn’t yet consistently profitable. The Illinois-based marijuana firm posted a net EBITDA loss of $9.4 million, although adjusted EBITDA was a net profit of $5 million.

Barnes & Noble Educations (BNED) financial struggles suggest that its digital transformation still hasnt taken off. But is it too late?

Finally, the company posted a net loss of $22.2 million, compared to a net income of just under $400,000 during last year’s corresponding quarter. This net loss was due, among other things, to an increase in operating expenses; it also came slightly below most analyst estimates.

Despite Aurora Cannabiss subdued results, Cowen initiated coverage on five cannabis stocks: CRLBF, GTBIF, CURLF, MMNFF, and ACRGF.

Despite its ugly bottom line, Green Thumb’s quarter was solid. In particular, its growing retail presence and the increasing demand for its products should appeal to investors. 

Investing in any pure play cannabis company carries a somewhat significant amount of risk at the moment. However, some companies seem better equipped than others to profit from the growth of the marijuana sector.

With solid (and growing) footprints in the largest market in the world and strong top line growth, Green Thumb looks relatively attractive right now. Of course, a lot can still go wrong, but those interested in investing in pot stocks should strongly consider Green Thumb Industries. 

Marijuana was legalized across Canada on October 17th, and a little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

Besides making key partnerships with Facebook and Amazon, theyve just made a game-changing deal with the Ontario government.

This is the company we think you should strongly consider having in your portfolio if you want to position yourself wisely for the coming marijuana boom.