Laurentian Bank remains lukewarm on Aurora Cannabis

Retail cannabis sales had their best month so far this past December according to Statistics Canada, a result which Laurentian Bank Securities analyst Chris Blake is taking as having a neutral impact on stocks like Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News TSX:ACB).

In an update to clients last Friday, Blake reasserted his “Hold” rating for Aurora and $2.00 per share
target price, implying a 12-month return of negative ten per cent at the time of publication.

Stats Canada said last Friday that $146.2 million in legal cannabis was bought in December, an 8.1 per cent increase over November and a 155-per-cent year-over-year increase, enough to put the industry’s annual rate at $1.75 billion.

The data showed nine out of ten provinces had higher sales in December, with Manitoba showing a whopping
53.9 per cent increase, Alberta up eight per cent and Ontario up seven per cent. BC turned out to be the lone province with a drop in sales at negative seven per cent but it nonetheless had the highest sales growth among all the provinces for the fourth quarter of 2019 at 65 per cent.

Blake said the results were as expected, with still-limited store openings hampering industry growth.

“Industry sales were in line with our expectations as limited store openings during the period continued to be a drag on industry growth. However, we are encouraged to see a 28 per cent increase in the number of cannabis retail stores opened/licensed over the past three months which should start to positively impact industry sales in the back half of Q1/20,” Blake wrote.

Based on his latest review, the analyst says that total stores opened or licensed across the country currently stands at 767, representing a 28-per-cent increase compared to his last count in mid-November. The increase bodes well for the industry, said Blake.

“This is important because the number of retail stores opened should be a positive leading indicator of future cannabis sales that are reported by Statistics Canada albeit with a two month lag. Furthermore, the 30 per cent growth rate reinforces our expectation that month-to-month growth will materially improve throughout Q1/2020 driven by Quebec, BC and Alberta. Ontario should start to meaningfully improve in Q2 given recent policy announcements,” he wrote.

Edmonton-based Aurora Cannabis announced its second quarter fiscal 2020 financials earlier this month, showing net revenue of $50.6 million compared to $75.2 million for the previous quarter and $54.2 million for Q2 2019. ACB’s adjusted EBITDA loss for the quarter was $80.2 million versus a loss of $39.7 million over the previous quarter.

Earlier in the month, Aurora announced the stepping down of CEO Terry Booth along with a layoff of ten per cent of its employees and two write-downs. The company called the moves part of a transformation plan which also involved amendments to its credit facilities, actions aimed at rationalizing Aurora’s balance sheet.

“Despite delivering modest growth in our core medical and consumer business in Q2, we took immediate and deliberate actions to align our Company to current market conditions,” said Michael Singer, Aurora’s interim CEO, in a February 13 press release.