Aurora Cannabis stock slid after hours Thursday after the Canadian pot producer reported fiscal third-quarter earnings that missed estimates, marked by a slide in recreational cannabis revenue.
The company reported the results after those from rivals Cronos Group (CRON) and Aphria missed expectations, and as analysts grow concerned about fresh coronavirus-related lockdowns in Canada, where cases have spiked and few are fully vaccinated. Other marijuana stocks closed lower during the day.
Aurora Cannabis Earnings
Aurora Cannabis lost 85 Canadian cents per share, according to a filing, far worse than expectations for 21 cents per share.
Revenue of 55.161 million Canadian dollars also came in below estimates for 66.92 million Canadian dollars. Cannabis net sales for Aurora fell nearly 21% to 55.2 million.
The company also said it identified “further cost savings of $60 million to $80 million annually.” Aurora said those savings would help it meet financial goals, and that they would not affect future sales growth.
Aurora said it had around $525 million in cash. That money, it said, “will allow us to support organic growth as well as opportunistic M&A, particularly in the U.S.” However, analysts have focused on Aurora’s cash in the past amid concerns the company’s supply of it was growing thin.
Medical cannabis net sales rose 17%. But adult-use cannabis sales tumbled 53%. Aurora attributed the drop in recreational weed sales, in part, to “Covid-19 related challenges across Canada in both provincial distributors and consumer access to in-store retail shopping.”
Canada’s marijuana industry has grown more competitive. Aurora’s retail market share was 5.5% from January through March, according to Stifel. Aphria, the largest, had 11.5%.
After expanding aggressively and, later, cutting staff and closing facilities, Aurora has said it wants to focus more on premium weed products. The move would leave others to fight it out over cheaper product to compete with the illicit market. Aurora also said it would focus more on working with third-party suppliers, after churning out more weed from its cultivation facilities than customers wanted.
ACB Stock, Marijuana Stocks
Marijuana stocks exploded earlier this year, as investors wagered on bigger legalization moves in the U.S. Other investors, potentially egged on by the Redditors who launched GameStop (GME) higher, climbed aboard. Much of that rise has evaporated after peaking in February.
Canadian Marijuana Stocks And Covid
Cronos and Aphria in recent weeks reported falling sales, a trend they attributed to coronavirus restrictions. Retail cannabis sales in Canada have largely increased in the Covid-19 era. But they fell in January and February.
Stifel estimates that Canada’s recreational market will surpass 4 billion Canadian dollars in sales this year, helped by the large province of Ontario, where stores were initially slow to open. However, Stifel analyst Andrew Carter said “continued lockdowns could present a risk to our market estimates for the year.”
He said trends suggest “relatively anemic” market growth for the first three months of this year, as provinces, which buy cannabis from the producers, cut inventory levels.
He also pointed to broader risks for Canada’s marijuana stocks.
Carter also said the industry suffers from broader “structural” difficulties. When provinces change their purchasing patterns in response to downtrends, “private market operators bear the vast majority of the downside risk.” And he said that even as some producers say profitability is on the horizon, other risks remain.
“We believe it will be increasingly difficult to profitably capture growth in the Canadian market with ‘strengthened balance sheets’ across the sector likely facilitating continued irrational deployment of capital with limited prospects of a shakeout driving the market towards rationality,” he said.
Follow Bill Peters on Twitter at @IBD_BPeters.
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