Should You Avoid Aurora Cannabis Stock?
With the legalization of cannabis across several new states and a brand new bill to decriminalize marijuana federally, cannabis stocks have been the talk of the town. Canada-based Aurora Cannabis (NYSE:ACB) is one of the most popular cannabis stocks in the market. It produces and trades in medical and recreational-based cannabis products globally. However, the stock is still down 60% in the past 12 months even when the rest of the cannabis stocks in the U.S. have continued to flourish – but should you avoid Aurora Cannabis Stock?
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Aurora Cannabis: Another Disappointing Quarter
Despite establishing some stringent measures and a series of new transformations, Aurora was unable to turn profitable this year. All its aggressive policies proved detrimental and losses kept on mounting. The net revenue for the quarter reduced to $67.8 million in Q1 of fiscal 2021 from $75.2 million, although it was able to sell an additional 3,676 kgs of cannabis during the quarter.
The selling price also dropped by $1.78 per gram. The management attributed such decline to the increased competition Aurora’s daily special value brand had to face from its peers.
The decline in revenue also led to another quarter of negative EBITDA of $57.9 million. The overall net loss was also alarming. Unable to face the volatility of the cannabis market it had to shut down the cultivation facilities it invested in and write down on the investments it had made in its subsidiaries.
Asset erosion is yet another alarming sign which puts to question the future viability of this cannabis company. All these situations portray it might be difficult for Aurora to witness a profitable next quarter as well. Does this mean you should avoid Aurora Cannabis stock?
Same Old Product Offerings from ACB
To survive in a competitive market a firm should always strive on improving its product base. If the products are unique or better than peers in terms of perceived quality and price, the firm can become the undisputed leader of the market.
In December 2019, Aurora had launched cannabis-infused edibles and some vapes. But after that, there were no other new launches made. The old products usually always fall short while competing with the new and improved versions offered by their peers.
Aurora might have opted for a cost leadership strategy for reducing its overhead costs. To some extent, its costs did come down like the SG&A expenses which were within the budgeted range of $40 million-$45 million, but it did not prove to be very beneficial. Standing at this point, Aurora needs to further cut down its costs and launch new and innovative products in the growing cannabis beverage market. Should ACB stock be avoided?
Aurora’s Failed Turnaround Strategies
Cannabis is a growing industry. Many of the cannabis players have opted to partner with bigger/different players, particularly in the alcohol and tobacco space, to set their footprints in other countries.
For example, Aphria Inc. partnered with SweetWater of the US to launch its cannabis-infused beverages in the massive US beer market. Aurora has a sufficient cash balance as per its latest financials but it isn’t pursuing this course.
Its acquisition of Reliva LLC earlier this may for $40 million worth of its common stock did not help much as of now. Also, its strategy of a reverse stock split to boost its share prices did not provide much relief either. It had to resort to the consolidation of 12 shares into 1 share to push up the share prices from $1 to avoid getting delisted.
Aurora could not live up to its promise of delivering a positive EBITDA during this quarter. The coming quarters are very crucial for its survival. If you are keen on investing in the cannabis space, there are better options available in the market. We would recommend avoiding Aurora Cannabis stock for now.
Visit our Featured Companies Page to learn about the best cannabis stocks for 2021.
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