Aurora Cannabis Inc: Still a Top Canadian Pot Stock?

Don’t Ignore Aurora Cannabis Inc

If you are concerned about the future of the U.S. cannabis industry because you don’t know who the next president is going to be, you can always look north of the border.

You see, in Canada, recreational cannabis has been legal for adult use since October 17, 2018…and the industry has been booming.

Quite conveniently, several of the top Canadian pot stocks also trade on U.S. stock exchanges. And regardless of who wins the upcoming U.S. presidential election, Canadian pot companies should be able to continue traveling on their growth trajectory.

One of the major players up north is Aurora Cannabis Inc (NYSE:ACB), a vertically integrated cannabis company headquartered in Edmonton, Alberta. The company currently has four production facilities in operation with a combined annual production capacity of 142,500 kilograms (314,159 pounds). (Source: “Investor Presentation September 2020,” Aurora Cannabis Inc, last accessed October 15, 2020.)

Even though the cannabis industry is still at a nascent stage, Aurora has already built a name for itself. Last year, the company won Canadian Cannabis Awards in four categories: Top Sativa Flower, Top Indica Flower, Top Cannabis Spray, and Top Balanced Bottle Oil. Aurora is also behind the top three best-selling products in Ontario—Canada’s most populous province: “Pink Kush,” “Blue Dream,” and “Tangerine Dream.” (Source: Ibid.)

Aurora Cannabis serves both recreational users and medical patients. Right now, the company has more than 85,000 active registered medical patients.

Substantial production capacity and a strong market position allowed Aurora Cannabis to become a big-name pot stock. The company is listed on the Toronto Stock Exchange—the biggest stock exchange in Canada—as well as the New York Stock Exchange. On both exchanges, its ticker symbol is “ACB.”

One of the concerns regarding the cannabis industry is its performance in this pandemic era. Due to the outbreak of COVID-19, consumer behavior—along with many producers’ production capabilities—has changed.

Looking at Aurora Cannabis Inc, we see that the company generated CA$72.1 million of total net revenue in the fourth quarter of its fiscal year 2020, which ended June 30. The amount represented a five-percent decline from the March quarter. Notably, cannabis net revenue came in at CA$67.5 million for the reporting period, which was down just three percent sequentially. (Source: “Aurora Cannabis Announces Fiscal Fourth Quarter 2020 Results,” Aurora Cannabis Inc, September 24, 2020.)

Of course, those numbers weren’t good enough for growth investors. But if you look beyond the top line, you’d see that the company has improved its operating efficiency.

In particular, Aurora’s adjusted gross margin before fair value adjustments was 50% in the fourth fiscal quarter, marking a substantial expansion from the 43% in the third fiscal quarter. Both the consumer cannabis segment and the medical cannabis segment delivered wider adjusted gross margins.

One thing that makes Aurora Cannabis Inc stand out is that it is a low-cost cultivator. In the June quarter, the company’s cash cost to produce one gram of dried cannabis sold was CA$0.89. To put that in perspective, the average net selling price of dried cannabis for Aurora was CA$3.60 for the quarter. No matter what the ACB stock bears say, Aurora knows what it’s doing when it comes to growing pot.

The company also managed to produce and sell more cannabis sequentially. In the fourth fiscal quarter, Aurora produced 44,406 kilograms (97,898 pounds) and sold 16,748 kilograms (36,923 pounds) of pot, representing quarter-over-quarter growth of 23% and 32%, respectively.

Mind you, the company is not just selling dried flower. In October 2019—one year after the legalization of recreational marijuana in Canada—the country legalized cannabis-derivative products such as edibles, concentrates, and topicals. This is often referred to as Cannabis 2.0. And Aurora was right there to get a piece of the action: the company launched 23 Cannabis 2.0 SKUs in December 2019.

Analyst Take

If you’ve been following the industry, you’d know that Aurora stock is not exactly a hot commodity right now. But that does not change the fact that the company is a force to be reckoned with in the Canadian cannabis industry.

It’s also important to keep in mind that, while cannabis is legal in Canada, it is still a highly regulated business. The cultivation, processing, and sale of cannabis products requires licenses. And to do those things at scale is not an easy feat. With an established market position, ACB stock could be an opportunity for investors who want to get some exposure to the Canadian pot business.