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Cannabis Aurora Cannabis expects to miss analyst revenue estimates in first post-legalization quarter

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Workers check on the marijuana plants during the growing process at the Aurora Sky facility in Edmonton, on July 13, 2018.

JASON FRANSON/The Globe and Mail

Aurora Cannabis Inc. shares sank Tuesday after the company issued a sales forecast for its second fiscal quarter that fell below some analysts’ expectations amid countrywide supply shortages that have hampered sales of recreational marijuana.

Aurora’s guidance comes amid what has been a tepid start to legal recreational cannabis sales in Canada, as a dearth in supply has prompted store closings, product rationing and a dramatic reduction of the number of stores being licensed. Alberta temporarily stopped issuing new licences, while Ontario will choose 25 retailers in a lottery this week that can open by April 1.

For the three months ended Dec. 31, Edmonton-based Aurora expects to book between $50-million and $55-million in revenue, after taking into account excise taxes of “several million,” it said in a press release. That would mark an increase from the company’s industry-leading $30-million in sales posted in its prior quarter, but would be well below one high-end estimate of $75-million. Aurora is slated to publish second-quarter earnings on Feb. 11.

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“It’s been, in the last couple quarters, tough for analysts to get a handle on how to properly project. So what we want to do is add clarity to this," said Cam Battley, the chief corporate officer at Aurora. "We’ve seen such a wide range in estimates. It’s not useful to investors if the estimates are all over the place. We wanted to get ahead of the game.”

Analyst estimates are all over the map. BMO Nesbitt Burns Inc. was estimating Aurora’s revenue of $40-million. Laurentian Bank Securities Inc. predicted in a note Tuesday that Aurora would have revenue of $60-million. In a Nov. 13 note, GMP Securities LP said that Aurora would record $75-million in revenue.

Shares of Aurora fell 4 per cent Tuesday to $6.68. Since the week of Oct. 17, when Canada legalized recreational marijuana, Aurora’s stock has fallen, losing more than half its value amid a sector-wide sell-off.

“The $50- to $55-million sounds good, but it’s still a drop in the bucket for a company that has a market cap of $7-billion,” Chris Damas, the editor of the BCMI Cannabis Report, said by phone.

“Sales have been very slow and there has been this bottleneck of supply. And the reality is these companies will not have the kind of sales that analysts were predicting until maybe the second half of 2019, and that’s optimistic.”

Mr. Battley says Aurora is selling everything it can produce.

“The demand, thus far, is unquenchable. We have the ability to sell every gram," Mr. Battley added.

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Aurora also said that its patient base in Canada grew to 71,000, from 67,484. It added that shipments to foreign markets were “relatively stable.” In the prior quarter, it sold $2.8-million in dried cannabis in Europe.

“The only thing that’s holding back our revenue is the limitations of production. That’s why we are being transparent on the rate of ramp-up and the timeline," Mr. Battley said. "As production ramps up, so will revenue. It’s really that simple.”

Aurora also said that its yearly production capacity has increased to 100,000 kilograms of cannabis, from 70,000 kg in November. It defines capacity based on the growing space approved by Health Canada, annualized for future harvests. Aurora also says its capacity will grow to 150,000 kg within the first three months of the calendar year 2019. And in the quarter after that, which ends June 30, it expects to have 25,000 kg of cannabis available for sale.

It also said that it expects its sales, general and administrative (SG&A) costs to be “roughly consistent” with the prior quarter. It reported $36-million in general and administration expenses and $29-million in sales and marketing costs. Analysts at BMO said Tuesday they have to hike their estimates for fiscal 2019 sales and second-quarter SG&A.

Aurora also said that it expects to achieve positive earnings before interest, taxes, depreciation and amortization beginning in its fiscal fourth quarter – or the second quarter of calendar-year 2019. But Mr. Battley wouldn’t say when he expects Aurora to achieve outright profitability.

“The bottom line," Mr. Damas said, "is the revenue isn’t there, the cash flows aren’t there.”

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Rival Aphria Inc. is set to report its earnings on Friday. It will be closely watched in the wake of last month’s report by short-sellers that sent its share price tumbling.

Because of delays in product shipments to retailers, there were barely any recreational marijuana sales in September, which was the end of the last reporting period for companies such as Aurora, Canopy Growth Corp. and Tilray Inc. Those three cannabis companies booked $66-million in total revenue and operating losses of $353-million – despite their shares being valued at nearly $30-billion at the time.

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