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The Aurora Cannabis’ Earnings are a Mixed Bag

Aurora is producing literally tons of cannabis, but can they get the red ink under control?

Well, Aurora Cannabis ACB made good on one of its most important promises to investors, it sold a boatload of marijuana.

The company sold nine metric tons of cannabis and saw net revenues increase by 20% to USD$48.5 million. ACB also grew sequential gross sales by 21% – excluding excise taxes -giving it some of the best sales in the industry. And, the company saw the cost of producing cannabis drop to CA$1.42 per gram from CA$1.92 in December 2018. The goal for the company is getting this number down CA$1.00 per gram.

Furthermore, and circling back to an earlier item, production capacity doubled sequentially to 15,590 kilograms and the company expects to reach 25,000 kilograms by its Q4. This amount of production is the effect of the mammoth Aurora Sky facility getting turned on.

“We achieved solid revenue growth and strong operating results in a quarter proven challenging across the industry,” Aurora’s chief executive Terry Booth said in the earnings announcement.

The numbers above missed by Wall Street’s estimate, but what is more concerning for investors – the stock fell 2% in after-hours trading – was the growing amount of red ink. Aurora lost a total of CA$160 million in their fiscal third quarter, but after excluding fair-value adjustments and other one-time expenses, the loss is close to CA$55 million.

Medical cannabis sales and the high-profit margins continues to be a bright spot for Aurora. In Q3, the company took home CA$29.1 million from medical cannabis sales, which was a 12% quarterly improvement. The company increased registered medical patient from 70,000 to 82,745.

The Cost of Growth

Aurora also ratcheted up sales from cannabis derivatives like oils and tinctures recording CA$8.5 in extract sales to medical users and CA$2.2 million for recreational users. These numbers accounted for 18% of total cannabis sales, and while some might say these numbers are lower than expected, it is hard to gauge what is ahead for Aurora regarding extracts as partnerships like the one with Radient Technologies RDDTF will soon begin to take shape after many months of waiting and posturing.

“Aurora is an extremely active and diversified company, leading the industry in cannabis research, product development, cultivation, global scale, and revenue growth,” Glen Ibbott , CFO, stated in the company issues release. “With a solid Q3 on all fronts, it’s time to move the yardsticks for the industry again. The company we have built with purpose through both organic growth and targeted acquisitions has provided a unique opportunity: continue to lead the industry in revenue growth while also progressing to positive operating earnings in the near term.”

The cost of being so diverse of a company is also appearing on Aurora’s balance sheet in the form of outstanding shares and goodwill.

The company has financed 15 buyouts since late 2016 through issuing common stock and now Terry Booth’s Canadian behemoth is over the 1 billion share marker. For many frugal investors, this is a serious turnoff. Plus, CA$3.18 billion in goodwill is on the books and maybe some write-offs will happen, but, still, that number is 57% of total assets.

The Fed model compares the return profile of stocks and US government bonds.