Aurora Cannabis Inc. (TSX: ACB) is a Canada-based medical cannabis company that is engaged in the production, distribution, and sales of cannabis and cannabis-related products locally as well as globally.  

Key highlights

• Acquisition of Thrive Cannabis: On March 22, 2022, the group announced the agreement for the acquisition of TerraFarma Inc. (parent company of Thrive Cannabis) for a total consideration of CAD 38 million. This acquisition will enable the ACB to position its presence in the Canadian market strategically by focusing on the various innovative premium products comprising dried flowers, pre-rolls, vapour products, and concentrates.

• Innovative product offerings: The group recently gave a sneak peek at its upcoming products including 25 brand new flowers, pre-roll, extract, edible and vape, etc.

Source: Company presentation

• Industry-leading adjusted gross margins: For Q2FY22, the company outshined by reporting the highest adjusted gross margins across the industry. Below is the graphical representation of how well

Source: Company presentation

• Lower Debt ratios: The company is efficiently managing its debt metrics during Q2FY22, as compared to the industry median.

Source: Refinitiv, Analysis by Kalkine Group

Risks associated with investment

The industry is vulnerable to a lot of regulations and changing laws, which is the biggest risk to its business. Further, the price war due to intense competition, foreign exchange volatility, etc are a few of the risks the company is exposed to. 

Financial overview of Q2FY22 (Expressed in thousands of CAD)

 Source: Company Filing

• The company witnessed a decline in its Net revenues to CAD 60.58 million for Q2FY22 as compared to CAD 67.67 million in 2QFY21.

• The gross profit for Q2FY22 was reported at CAD 5.58 million which was lower than the Q2FY21 gross profit of CAD 12.21 million. The lower gross profit was on account of the higher cost of sales for Q2FY22 at CAD 71.65 million vs CAD 50.50 million in Q2FY21.

• For Q2FY22, the net loss from operations widened to CAD 55.79 million vs a net loss from operations of CAD 52.12 million in Q2FY21.

• The net loss for Q2FY22 was reduced to CAD 75.14 million vs net loss of CAD 297.92 million in Q2FY21.
  

Valuation Methodology (Illustrative): EV to Sales based valuation

Source: Refinitiv, Analysis by Kalkine Group 

Stock recommendation 

The company recently came out with various innovative products which can help the group to raise its market share further. The recent announcement of the acquisition of Thrive Cannabis will further help the company to position itself in the Canadian market with various premium products falling under the brand of Thrive Cannabis. On the valuation front, the stock is measured on the EV to Sales based multiple and for the valuation, we have considered Canopy Growth Corp, Tilray Brands Inc. as the peer group for the comparison.

On the technical front, the stock is trying to gain ground and consolidating around CAD 4.0 levels. The leading oscillator- Relative Strength Index is currently showing a reading of 47.78, which needs to be elevated further before confirming any fresh uptrend formation. Recently the stock broke the 50 DMA and tried to sustain above for a few days before falling again. Any further attempts where the prices sustain above the 50 DMA, will further give a boost to the stock prices, proving the trend confirmation bias in the near term.

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the current market price of CAD 4.53 at 9:57 AM Toronto Time on April 14, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 14, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.