How bad is it getting for Aurora Cannabis?

The sector is facing hard times all around but perhaps no company has best expressed the high hopes and disappointing results (so far) than Edmonton-based Aurora Cannabis (Aurora Cannabis Stock Quote, Charts, News, Analysts, Financials TSX:ACB) which just delivered quarterly numbers sporting an huge net loss of $1 billion for the company’s third quarter fiscal 2022.

Once seen as a poster child of Canada’s globe-conquering ambitions when it comes to marijuana, Aurora had spent the years leading up to and into the first stretch of the legalization of Canadian rec cannabis by quickly expanding its business, setting up production plants in a number of locations across the country as well as in Europe. But a downturn in the pot market along with perhaps a case of too-much-too-soon have hobbled the company, which over the past two years has shuttered facilities in Canada and Europe and laid off staff by the hundreds. The latest chapter includes the closure of its brand-defining Aurora Sky operations in Edmonton along with facilities in BC, all part of drastic and ongoing cost-cutting measures from Aurora.

“We continue to steer our differentiated global cannabis business towards long term shareholder value creation,” said CEO Miguel Martin in a Thursday press release announcing the company’s Q3 earnings. “This is being accomplished through a sole focus on the most profitable growth opportunities, rationalization of our Canadian cost structure and disciplined use of capital. Our plan is working and we remain firmly on track to achieving a positive Adjusted EBITDA run rate by the first half of fiscal 2023.”

Net revenue for the quarter at $50.4 million was down nine per cent year-over-year and down a full 17 per cent compared to the previous quarter, while adjusted EBITDA was put at a loss of $12.3 million compared to a loss of $20.9 million a year earlier. 

The company’s huge net loss was attributed to a goodwill write-down of $741.7 million related to the facilities it was closing as well as asset-specific impairments of $176.1 million and an inventory provision charge of $63.6 million. Aurora said it ended the quarter with $480.6 million in cash and access to a further US$887.6 million of capital under its shelf prospectus.

Commenting on the quarter was BNN Bloomberg analyst David George-Cosh who called the Q3 numbers dismal, noting that Aurora’s timeline to profitability may once again prove to be ambitious.

“The company is still projecting to report positive adjusted EBITDA in the next fiscal year, sometime in the first calendar year of next year, but analysts are still quite bearish on that. They’re pushing that target out to a few more quarters. This is a company that continues to put [out] these adjusted EBITDA projections time and time again and continues to miss them,” said George-Cosh in a BNN Bloomberg segment on Friday.

One highlight for the quarter was Aurora’s medical cannabis net revenue which was up eight per cent year-over-year to $39.4 million and came from growth in its international markets.

“We were pleased to have experienced considerable top-line growth in this segment year over year, and with new international markets poised to open, our track record and ability to navigate complex regulatory environments position us ideally for a significant revenue opportunity globally,” said Martin. 

“In terms of the Canadian adult-use market, we continue to adjust to current conditions, are excited for future contributions from the Thrive team, and are committed to a continuous stream of innovation, including advancing our premiumization strategy,” he said.

The market appears to be unfazed by Aurora’s mounting losses, as the stock ended the day on Friday up almost 16 per cent. The whole cannabis sector had an up day, however, as moves to decriminalize marijuana in the United States took somewhat of a step forward with a bipartisan group of Senators voiced their support for the SAFE Banking Act, which would among other things make it easier for cannabis companies to conduct their business. Even with the boost, ACB remains down by about 47 per cent year-to-date and down 59 per cent over the past 12 months.

ATB Capital Markets analyst Frederico Gomes spoke about Aurora in a recent report to clients saying that while the company’s balance sheet looks good as does management’s focus on profitability, the dimmer view within the cannabis space in Canada and internationally will be a problem for the company and stock. 

“Our thesis is that ACB’s market value implies overly demanding growth expectations considering its margin-focused strategy in Canada and the uncertainty of international markets,” said Gomes in his May 9 report.

Aurora’s third quarter key numbers came in below those forecasted by Gomes, with the $50.4 million in net revenue arriving under Gomes’ $51.7 million estimate while the adjusted EBITDA loss of $12.3 million was also greater than Gomes’ called for EBITDA loss of $5.9 million.