Consumer Products

Will a Push for Market Share Work for Aurora Cannabis Stock?

Aurora Cannabis Inc. (NYSE: ACB) is riding the volatility wave this week even after the Canadian weed company delivered what has generally been viewed as a positive third-quarter earnings report last week.

The cannabis company’s share price dropped in the days leading up to May 14, when it posted financial results for the fiscal third quarter, which ended March 31.

Bearish expectations grew when Aurora competitor Tilray Inc. (NASDAQ: TLRY) reported on May 11 that it lost C$0.49 per share in its first quarter when a loss of C$0.44 had been expected. (At today’s conversion rate, one Canadian dollar is equal to about $0.72.)

Then Aurora reported a net loss per share of C$1.37 on revenues of C$76.4 million. In the same period a year ago, the company posted a loss per share of C$1.89 on revenue of C$66.6 million. Analysts had forecast a net loss per share of C$0.04 and revenues of C$46.9 million.

Consumer Cannabis Revenue Up 24%

Aurora’s consumer cannabis revenue was up 24% while Canadian medicals were up 6%. Overseas medical pot sales soared 125%, led by operations in Germany.

That was enough to make Aurora stock skyrocket, more than tripling from Thursday to Monday, when it closed at $17.10 per share. Then a different reality set in on Tuesday with the stock sliding more than 14% to $14.65 a share.

While the cannabis producer’s stock price is responding to the earnings report, it also appears to be taking into account the prospects for the future. A major question is whether the jump in revenue can be sustained in the fourth quarter of the fiscal year and the first quarter of fiscal 2021.

Stocking Up for Pandemic?

If customers and patients were merely stocking up on marijuana — like they did with hand sanitizer and toilet paper — before the COVID-19 lockdown, demand for pot may be much lighter in the fall.

Aurora was founded in 2006. It produces and sells medical and recreational cannabis products in more than 20 countries. But the Canadian cannabis experiment is of particular interest. The country legalized recreational use of marijuana in October 2018.

Uruguay is the only other country to legalize the sale of recreational pot so far, though medical marijuana has been legalized in more than three dozen countries and decriminalized in several more.

Canadian sales have been lower than expected, particularly because of regulatory hurdles and delays in opening pot retail stores in some provinces, notably Ontario. Many consumers still buy their pot on the black market, where it’s cheaper because sellers avoid taxes.

In the United States, recreational marijuana is legal in 11 states. In a few others, prohibition laws are loosely enforced but sales aren’t legal. Medical use is approved in 33 states. The COVID-19 pandemic has slowed efforts in some states to legalize cannabis for all adult users.

Looking for Bigger Market Share

The consensus analyst estimate for the fourth fiscal quarter calls for a loss per share of C$0.04 on revenues of C$76.2 million. For the full 2020 fiscal year, analysts expect a loss per share of C$1.25 and sales of C$278.5 million.

Michael Singer, Aurora’s executive chair and interim chief executive, has said the company is on track with its plan to strengthen its balance sheet and reduce costs. The company has also decided to focus on gaining market share rather than revenues as the pandemic continues.

Aurora’s shares traded down more than 14% at $14.65 after closing at $17.10 on Monday. The stock’s 52-week range is $5.30 to $105.24 (adjusted for the stock’s 12-for-1 reverse split).

On Monday, Ladenburg Thalmann reiterated its Buy rating for Aurora Cannabis stock, lowering the price target to $18 from a split-adjusted $36.