Aurora Cannabis (ACB), which is down 64% year to date, has experienced one of its most challenging years in its history. The company has posted two straight quarters of negative earnings and has consistently seen negative operating income. The company will likely report its third quarter financial results next month. If the company has any hope of turning things around, its needs to show improvements in the following areas…
SG&A Expenses
Selling, general and administrative expense (SG&A), which is reported on the income statement, is the sum of all direct and indirect selling expenses and all general and administrative expenses. It includes all costs not directly tied to making a product or performing a service. The company’s SH&A, or cash burn, has been trending upwards over the past few years. The company spent $66 million last quarter, $88 million the previous quarter, and $78 million in quarter before that. With revenue of only $56 million, $41 million, and $55 million during those quarters, there is a reason why investors are sour on the company. The company needs to lower this figure going forward.
Margin and Production Costs
Gross margin is the difference between revenue and cost of goods sold divided by revenue. It is essentially the sales revenue a company holds onto after incurring the direct costs associated with producing the goods it sells. ACB had a gross margin of 71.11 on October 1st, and that figure has trended down since. While the company has been able to produce dried flower for under $1 per gram, the decreasing gross margin reflects ACB being aggressive on price to gain market share. That may help increase revenue, but it harms its gross margin. The company needs to increase its margins going forward to help it reach profitability.
Recreational and Medical Sales
In the previous quarter, ACB saw its revenue increase from $41 million to $56 million due to consumers stocking up on products due to the lockdown. The problem with ACB is that the company’s revenue growth has not been consistent. The company’s competitors have shown weak revenue growth, which is a concern for ACB ahead of its next earnings update. The company needs to show solid sales growth to excite its investors.
EBITDA
The company has promised investors that it would achieve positive EBITDA by the first quarter of fiscal 2021. EBITDA is earnings before interest, taxes, depreciation, and amortization. In its most recent financial results, the company reported an EBITDA loss of $65.61 million. If the company can improve on that figure, it is a positive sign for investors in the hope that the company can achieve positive EBITDA by its stated goal.
Management
One factor that has plagued the company for months now has been management, or a lack of one. The company promised investors a new permanent CEO would be announced “in the next few months”, but no news as of yet. If ACB can
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