Shares of pot giant Aurora Cannabis (TSX:ACB)(NYSE:ACB) fell over 26% on November 10 after it gained 176% in the previous six trading days. Aurora stock also fell 16.4% in after-hours trading on the NYSE yesterday.
Aurora Cannabis and peers gained momentum, as Joe Biden won the U.S. presidential race. During the pre-election debate, Vice-President-Elect Kamala Harris had emphasized the need to decriminalize marijuana at the federal level in the U.S., which sent pot stocks soaring after the Democrats won the election.
On November 9, Aurora Cannabis also disclosed its fiscal first quarter of 2021 results and reported net revenue of $67.8 million, indicating a 1% sequential gain and a fall of 10% year over year.
The company reported an adjusted EBITDA loss of $57.9 million, which includes restructuring costs of $47.4 million. After accounting for these charges, EBITDA loss stood at $10.5 million. Aurora claimed it is in compliance with its September 30th term debt covenants and is on the road to achieving a positive EBITDA in the December quarter.
Aurora Cannabis sales declined in Q1
Aurora stock gained 15% after its Q1 results, as it had forecast sales between $60 million and $64 million. While ACB beat its own guidance, its sales were up just marginally up on a sequential basis.
Aurora divested a few of its non-core businesses in the last few quarters, which contributed to its less-than-impressive revenue growth. However, its net cannabis sales fell 4% year over year in Q1, which means it is losing market share in a highly competitive but fast-growing space.
Aurora said its consumer cannabis net revenue totaled $34.3 million, which was 3% lower than sales in the prior-year period. This figure could have been lower, as Aurora confirmed consumer cannabis revenue was driven higher by $1.1 million due to its U.S. CBD sales after it acquired Reliva earlier this year.
Comparatively, Canopy Growth also reported its quarterly results, growing sales by 23% year over year to a record high of $135.3 million.
What’s next for ACB stock investors?
While Aurora expects to achieve a positive EBITDA in Q2, its operating loss stood at $107.2 million in the September quarter. The company is trying to grow the bottom line by slashing costs instead of top-line growth, which will make long-term investors nervous.
ACB also said it aims to achieve a positive free cash flow by the end of fiscal 2021, which will also mean it will not have to issue equity shares and dilute shareholder wealth. However, ACB stock lost a quarter of its market value yesterday after it announced another public offering.
Aurora said it will issue company units at a price of US$7.5 to raise US$125 million. Each unit will comprise one common share and one half of one common share purchase warrant. Further, each warrant will be exercisable to acquire one common share of ACB at an exercise price of US$9. Aurora stock closed trading at US$8.3 on November 10.
It’s clear that Aurora Cannabis will have to improve profit margins and cash flow in the near term, or the stock will experience another free fall from current prices and continue to burn investor wealth.
