Aurora Cannabis Inc

Aurora Cannabis Inc (TSX: ACB) is a global leader in the cannabis industry, serving both the medical and consumer markets. Headquartered in Edmonton, Alberta, Aurora is a pioneer in global cannabis dedicated to helping people improve their lives.

Key Highlights

• Improved financial performance on QoQ basis: Net revenue during the first quarter of financial year 2022 improved by 10.01% on sequential quarter basis to CAD 60.11 million from CAD 54.61 million reported in Q4FY21. Cost of revenue also declined significantly by 60.2% to CAD 46.01 million against CAD 115.68 million reported a quarter before. Further, the company reported gross profit of CAD 25.45 million against gross profit of CAD 12.65 million reported in the previous quarter. Also, the operating losses and bottom-line losses narrowed drastically in Q1FY22 on a sequential quarter basis.

• Strong market share and growing international footprint: In Canada, the company represent about 23% of the medical market, almost twice that of their closest peer, but only 1% of the population are currently patients. Also, the international medical business continued to show exceptional growth, growing by a 146% on a YoY basis. The company shipped a total of CAD 8 million during Q1 to their partner in Israel, Cantek, which is the largest single shipment of cannabis that Israel’s ever received.

• Competitive strength: The company’s expertise in medical cannabis and the ability to operate within a highly regulated framework handed them a great opportunity to expand in the global adult recreation market. Recently, the company announced an agreement to invest in Netherlands-based, Growery, one of ten license holders entitled to participate in the Controlled Cannabis Supply Chain Experiment.

• Increased ranking in The Globe and Mail’s 2021 annual Report: Aurora Cannabis again scores highest among cannabis corporate boards in The Globe and Mail’s Board Games Report. As recognized in the 2021 Board Games results, Aurora received 77 out of 100 eligible points, ranking notably higher than others in its peer group of cannabis companies.
  

Risk Associated

The company is exposed to variety of risks ranging from regulatory risk, supply chain related risk, lower demand offtake for cannabis recreational products, forex risk and other macroeconomic risk.

Financial Highlights: Q1FY22

Source: Company filing

• Reported revenue for Q1FY22 stood at CAD 60.01 million compared to CAD 67.59 million reported in Q1FY21.
• Gross profit declined to CAD 25.45 million in Q1 FY22 compared to CAD 35.02 million reported in Q1FY21.
• Operating expenses narrowed during the quarter to CAD 64.82 million compared to CAD 68.58 million reported in Q1FY21. However, operating losses increased to CAD 39.38 million compared to CAD 33.56 million reported in Q1FY21, because of decline in topline.
• Net losses significantly lowered to CAD 11.88 million as compared to CAD 101.39 million reported in Q1FY21.

Stock recommendation

The company has recorded strategic and financial progress from fiscal 2021 and has carried into the first quarter of fiscal 2022 and efforts to create shareholder’s value are gaining momentum. Their transformation plan is on track, and they continue to expect to achieve adjusted EBITDA profitability sometime in the first half of fiscal 2023. Moreover, ACB is number one Canadian company in global medical cannabis in terms of revenue, with leading margins of over 60%. This is nearly double what the industry generates in adult recreational market, which reflects the company’s competitive advantage. Further, the management believes that the long-term medical cannabis market will continue to expand globally, and they strongly believe the company will be the key beneficiary of recreational cannabis when legalized. However, the company is also exposed to risks highlighted in the risk section. Hence, we recommend a “Speculative Buy” rating on “ACB” stock at the closing price of CAD 7.62 (as on December 22, 2021).  

Technical Analysis Summary:

1-Year price chart (as on December 22, 2021). Source: REFINITIV, Analysis by Kalkine Group.

*The reference data in this report has been partly sourced from REFINITIV.

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