MK Kirk’s analyst Bill Kirk has acquired shares in Aurora Cannabis Inc. ACB downgraded.
ACB,
to sell on Friday, after the company’s fiscal earnings in the second quarter published late Thursday, did not live up to expectations. The numbers relate “on two fronts,” Kirk wrote in a note to customers. The company’s cannabis revenue of C $ 28.6 million ($ 22.5 million) has fallen by 17% since the first quarter and at its lowest level since the second quarter of 2019, he wrote. The company’s lead for positive adjusted EBITDA also failed to materialize and has deteriorated since the first quarter. “We do not see a cost-cutting or growth path achieving positive EBITDA in the short term,” Kirk wrote. “For perspective, Aurora in 2Q raised more in COVID-related subsidies than it generated in gross profit dollars.” Aurora may further keep its flower offering busy outsourcing sales functions and may struggle to differentiate itself from competitors and the oversupply in the Canadian market, Kirk said. “While the price pressure is still playing out, the company’s decision to introduce more premium price points seems to be a recipe for frustration by consumers / provinces, ” the analyst said. In an industry that is now showing years of consecutive growth, Aurora sold fewer recreational weeds in the quarter than in any full quarter since Canada fully legalized cannabis in October 2018, he wrote. “To the credit of the company, Aurora has a strong IP from its MedReleaf acquisition and strong brands in San Rafael and Whistler (both acquired),” Kirk said. “They will try to make premiums on this offer, but we believe the move to higher price point products will be difficult. Downgrade to sales while maintaining C $ 9 PT.” Aurora shares have fallen 4.2% previously and 17% over the past 12 months, while the Cannabis ETF THCX,
achieved 99.9% and the S&P 500 SPX,
achieved 16%.
