Shares of Aurora Cannabis Inc. jumped nearly 70 per cent on Friday, after the company reported stronger-than-expected marijuana sales and a reduction in expenses following a major restructuring earlier this year.
The Edmonton-based cannabis grower’s revenue rose 35 per cent to $75.5-million in the first three months of 2020, driven by strong sales of its new budget brand and a reduction in product returns and repricing charges. Consumer stockpiling in March ahead of the COVID-19 quarantine might have also boosted sales, interim chief executive Michael Singer told analysts on Thursday after markets closed.
Despite top line growth, the company continues to lose money, reporting a $137.3-million net loss in the quarter, and an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $50.9-million.
Cannabis stocks, which are largely owned by retail investors, often trade wildly around earnings reports, as do-it-yourself investors react to positive or negative sentiment and momentum traders pile in. Aurora stock has lost almost 90 per cent of its value over the past year, and on Monday the company conducted a 12-for-1 share consolidation in order to stay onside New York Stock Exchange listing rules that don’t permit stocks worth less than US$1.
The shares soared on Friday after the company’s earnings release, climbing 66.9 per cent to $15.35 by the end of day.
This was Aurora’s first quarterly earnings report since the company announced a major overhaul in February, which included 500 layoffs, more than $1-billion in goodwill writedowns and impairment charges, and the departure of long-time CEO Terry Booth.
Like most Canadian cannabis companies, Aurora has struggled to live up to investor expectations as the legal cannabis industry has been slow to win market share from illicit growers. February’s restructuring was an attempt to downsize the company to match slower-than-anticipated growth in Canada, and to pull out of stalled international projects.
The cost-cutting measures appear to be working, as the company reported a significant reduction in selling, general and administrative expenses in the quarter, as well as a decline in capital expenditures. In addition, in the past three months Aurora sold a greenhouse facility in Exeter, Ont., unloaded investments in “non-core” marketable securities, and reached an agreement to divest from “several non-core subsidiaries," the company said.
Aurora continues to bleed cash, although its $154.6-million cash burn for the quarter was down 44 per cent compared with the previous quarter.
The company has relied heavily on an at-the-market share issuance program to fund its operations in recent months, and it launched another US$250-million ATM program in April. This will act as “a backstop in a very uncertain environment,” Mr. Singer told analysts.
Mr. Singer said the company aims to become EBITDA positive by the first quarter of its 2021 fiscal year, which begins in July. Aurora has missed positive earnings targets before.
“While revenues in this current operating environment can be difficult to predict, we believe there are cost levers at our disposal to put us on a path to be EBITDA positive in Q1,” Mr. Singer said.
Most analysts that cover Aurora responded to the results with cautious optimism, noting the company’s progress in bringing down costs.
However, several expressed doubts about its ability to maintain revenue growth in the coming quarters, given the slow pace of cannabis retail store openings in Ontario and the impact of physical distancing measures on the market.
“We believe that the revenue beat, likely fuelled by pantry loading, will be well received by the market in today’s trading session, however, larger uncertainty still looms regarding the sustainability revenue growth heading into a … period that saw many dispensaries close down or convert to curbside only,” Eight Capital analyst Graeme Kreindler wrote in a note to clients.