The largest cannabis producer in the world was cut down to size with the consecutive quarters of disastrous financial results. Another revenue disappointment is due very soon. Unless Aurora Cannabis Inc. (TSX:ACB)(NYSE:ACB) hurdle three things, the company will sink deeper.
There is a sign of hope that this cannabis stock could rebound and triple in value in 2020. But the obstacles are not hard to clear. Three things stand in its way – funding support, stalled production expansion, and international market acceptance.
The immediate problem of Aurora at the moment is how to survive free cash flow (FCF) losses. It might have to issue more debt or dilute shareholders once more with equity issues.Aurora (TSX:ACB) (USA) Stock Could Triple in 2020 if These 3 Things HappenAurora continues to bleed despite stopping the construction of two major facilities to save $190 million in construction costs.
Management admits that the company still needs to spend $228 million for CAPEX in the next three quarters. However, funds are tight, as it has only $95 million available as of September 2019.
As the unrestricted cash on its balance sheet is $152.5 million, the company can no longer afford FCF losses, which are estimated to be $140 million per quarter.
In the recent quarter, Aurora had to bite the bullet and finance the losses. It raised debt, sold assets, and issued more equity shares.
Debt increased by 50% to $282 million as a result. Despite raising the needed cash, its liquidity position is shaky before even incurring losses.
Investors are curious to find out when profits will come. According to market analysts, don’t expect Aurora to report positive EBITDA in fiscal 2020. The sun will rise, however, in the second quarter of fiscal 2021 or the quarter ending in December 2020.
Aurora is the most significant cannabis producer but has yet to capitalize on this advantage. The company had to delay production expansion because the opening of retail stores is happening at a turtle pace. Aurora can go full blast when high demand is there. Back-up supply will likewise ease in 2020 as more stores open.
Cannabis 2.0 or the market for edibles, vapes, and infused beverages should help next year. Aurora has the best gross margins in the industry, which is the only positive for now.
After missing revenue targets and following the market selloff, some analysts believe top companies like Aurora are in the process of “rightsizing.”
International market acceptance
The key to Aurora’s financial success is penetrating the global markets. It faced a roadblock in Germany last week. There are regulatory requirements the company needs to meet before it can sell medical cannabis products early next year.
Ireland, through its Medical Cannabis Access Programme, approved CBD oil drops for the treatment of three medical conditions. Aurora could rule in this new market, although it needs to gain acceptance in a dozen other countries to ramp up global production.
Aurora’s concern is not production capacity but more places to sell cannabis products, including its line of derivatives. Strong sales should impact on revenue and earnings. It will ease the financial pressure and give the stock a boost.
If the company overcomes the complications, the price of $3.22 today could triple in a year.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned.