MKM analyst Bill Kirk downgraded the stock of Aurora Cannabis Inc.
ACB,
ACB,
to sell on Friday, after the company’s fiscal second-quarter earnings published late Thursday fell short of expectations. The numbers were “concerning on two fronts,” Kirk wrote in a note to clients. The company’s consumer cannabis revenue of C$28.6 million ($22.5 million) was down 17% from the first quarter and at its lowest level since the second quarter of 2019, he wrote. The company’s guidance for positive adjusted EBITDA also failed to materialize and showed deterioration from the first quarter. “We don’t see a cost-cutting or growth path that gets to
near-term positive EBITDA,” Kirk wrote. “For perspective, Aurora collected more in COVID-related subsidies in 2Q than it generated in gross profit dollars.” Aurora may be further commoditizing its flower offering by outsourcing sales functions and may struggle to distinguish itself from rivals and the excess supply in the Canadian market, said Kirk. With pricing pressures still in play, the company’s decision to push grows into more premium price points “seems like a recipe for consumer/province frustration,” said the analyst. In an industry that is now showing years of sequential growth, Aurora sold less recreational weed in the quarter than in any full quarter since Canada fully legalized cannabis in October of 2018, he wrote. “To the company’s credit, Aurora has some strong IP from its MedReleaf acquisition and strong brands in San Rafael and Whistler (both acquired),” said Kirk. “They will try to
premiumize around those offerings, but we believe the shift back toward higher price point products will be difficult. Downgrading to Sell, while maintaining our C$9 PT.” Aurora shares were down 4.2% premarket, and have fallen 17% in the last 12 months, while the Cannabis ETF
THCX,
has gained 99.9% and the S&P 500
SPX,
has gained 16%.
