Aurora Cannabis made a major reversal on October 19th. The stock was weak in the early morning and registered a new 52-week low. However, Aurora Cannabis closed the day higher by 17%. In technical analysis, we call this a reversal and a signal that the bear trend is about to finally change.
We know Aurora Cannabis shareholders have heard this before. It’s been a long and painful experience being a shareholder of Aurora Cannabis. Just look at the chart in the last year, and you see how bad it has been.
In this article, we take a look at Aurora Cannabis and why we believe that the recent price action indicates the end of the long bear trend.
First up, here’s a little background info for those not familiar with the company. Aurora is a global leader in the cannabis industry serving both the medical and consumer markets. Headquartered in Edmonton, Alberta, Aurora is a pioneer in global cannabis dedicated to helping people improve their lives.
The Company’s brand portfolio includes Aurora, Aurora Drift, San Rafael ’71, Daily Special, AltaVie, MedReleaf, CanniMed, Whistler, and ROAR Sports.
Aurora’s Common Shares trade on the TSX and NYSE under the symbol “ACB” and is a constituent of the S&P/TSX Composite Index.
The first thing to understand when buying Aurora Cannabis is that it’s a turnaround play. The major Canadian cannabis players (Canopy, Aurora, Aphria) all flooded the market with product. Too much supply and not enough demand has caused a major glut in Canada. Luckily, the U.S. doesn’t have the same problem and why players like Trulieve have been so successful.
In fiscal Q4, total cannabis net revenue was C$72.1M, down 5% from a year ago and down 3% sequentially. Consumer cannabis revenue was C$35.3M, down 9% sequentially despite a 36% jump in volume (average net selling price was down 30%). Medical cannabis sales were C$32.2M, up 4% sequentially.
Aurora management is trying to right-size the ship by pivoting to smaller premium markets of flower, pre-rolls, vapes, concentrates, and edibles. Furthermore, the company is cutting costs by laying off about 30% of its cannabis cultivation staff and 25% of its remaining administrative staff. In addition to reducing its workforce, the company plans to close five of its cultivation facilities and scale back production volume at several others.
What’s Next For Aurora Cannabis?
While we believe the low is in, Aurora Cannabis is not going to make anyone rich. While some investors are piling into Aurora Cannabis, Aphria, and Canopy on the back of an expected Biden/Harris administration, we have some bad news for them. It won’t matter as Aurora is too focused on Canada. What happens in the U.S. has no bearing on Aurora. That’s why while we see a reversal starting to take place, Aurora Cannabis will remain dead money until the cost per gram improves and the company can return to profitability.
While we do see the bear trend getting exhausted, it’s hard to say that a new bull trend is set to emerge in ACB. For those who are interested in marijuana stocks, there are plenty of companies in the burgeoning sector without the same financial woes as Aurora and that have more upside potential.
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Disclosure: We have no position in NYSE:ACB, or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.