Aurora Cannabis had a better quarter than investors thought, this analyst says

Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News, Analysts, Financials TSX:ACB) reported stronger fourth-quarter Adjusted EBITDA than any quarter in fiscal 2024, though momentum investors reacted to slowing sequential growth, according to Roth Capital analyst Bill Kirk.

In a June 19 note, Kirk reiterated a “Neutral” rating and lowered his 12-month price target to $7 from $8, citing concerns about decelerating profitability despite Aurora’s margin expansion, debt-free status, and leadership in international medical cannabis markets. Kirk said the quarter was better than the stock reaction.

Aurora Cannabis produces, distributes, and sells cannabis products, as well as indoor cultivation systems and hemp-based food items. It operates through Canadian and international cannabis segments and is headquartered in Edmonton, Canada.

Aurora reported a modest beat on net sales and Adjusted EBITDA. While profitability fell short of its record third quarter, the results still outperformed the best quarters of other industry peers.

Kirk said fourth-quarter net sales reached a record $90.5-million (versus consensus of $88.8-million and $88.2-million in Q3), with Adjusted EBITDA of $16.7-million (versus consensus of $15.2-million). Adjusted EBITDA and gross margin for Q3 were restated to $19.4-million (from $23.1-million). While EBITDA declined from Q3, gross margin improved to 62% from 61%. Higher selling costs ($15.5-million versus $13.1-million) and G&A expenses ($28.6-million versus $23.7-million) offset those margin gains. One-time Australian costs are expected to ease, but Bevo-related and labor expenses may continue to weigh on G&A. Aurora expects lower net sales and EBITDA in Q1 due to a weaker international mix, particularly from policy changes in Poland.

Medical cannabis rose 49% year over year and declined 1% quarter over quarter, driven by 114% year-over-year international growth through Germany, Australia, Poland, and the UK, with Canadian sales up 1%. Adjusted medical gross margin rose to 70% from 69% in Q3.

Aurora continues to prioritize Canadian supply for higher-margin international medical markets. Consumer cannabis declined 20% year over year and 18% quarter over quarter, while plant propagation grew 28% year over year in a seasonally small quarter. Medical products accounted for 75% of revenue and 88% of gross profit, both slightly down from Q3.

“Over time, we see advantages with GMP-supplied international opportunities (e.g., Australia, Germany, Poland, New Zealand), a steady Canadian medical business, and leadership in Australia. Canada, led by Aurora, is capturing high-quality international demand opportunities,” Kirk said.

Aurora generated $51.1-million in Adjusted EBITDA on $343.3-million in revenue for fiscal 2025. Kirk expects those figures to improve to $69.3-million in EBITDA on $395.2-million in revenue for fiscal 2026.

“We are intrigued by EBITDA profitability and valuation at under 2x EV/Sales, but upside is still too tied to legislative activity outside Aurora’s control,” he said. “Aurora is enjoying the relative stability of the Canadian medical market while capitalizing on profitable international medical opportunities, notwithstanding disruption in Poland. However, Aurora, with limited adult-use success in Canada, doesn’t have a clear right to win in new adult-use markets.”

He added that Canadian-grown product is proving more competitive internationally than previously expected. With a much-improved balance sheet, Aurora could pursue M&A to expand its European footprint. “While the Canadian market may not offer long-term growth, recent price stabilization and Aurora’s strong medical market share offer a stable floor.”

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