Aurora Cannabis sold 9 tons of marijuana last quarter

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Aurora Cannabis sold a ton of weed last quarter. Nine metric tons, in fact.

Like the other Canadian pot producers reporting earnings Tuesday, Aurora increased sales strongly in its March quarter. Investors had worried that the recreational marijuana market was off to a slow start in Canada, but on Tuesday evening the Edmonton, Alberta-based Aurora Cannabis reported that its net revenue grew 20% from the December period, to reach 65 million Canadian dollars (or US$48.5 million) for the March period. Aurora’s recreational sales grew 37% sequentially.

“We achieved solid revenue growth and strong operating results in a quarter proven challenging across the industry,” Aurora’s chief executive Terry Booth said in the earnings announcement. The company will hold a conference call Wednesday at 10:30 a.m. E.T.

The dual-listed stock [ticker: ACB or ACB.Canada] was off 2.1% in after-hours trading, after it gained 4.5% Tuesday to close at $8.38 per share. Aurora Cannabis stock was down 2.7% in Wednesday morning trading, to $8.15 per share.

With most analysts rating the stock a Buy, Aurora stock has risen 70% this year to give it an $8 billion market capitalization. The average price target for the stock among analysts polled by FactSet is $10.

Read our recent cover story: You’d Have to Be High to Buy American Marijuana Stocks

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Aurora’s March quarter revenue slightly trailed the consensus forecast for sales of C$67.5 million, but it got close enough. Its negative cash flow shrank 20% sequentially, to a negative C$36.6 million. Aurora said it expects to approach break-even cash flow in the June quarter (with cash flow defined as earnings before interest, taxes, depreciation and amortization).

Back in the December quarter, Aurora had negative cash flow of C$45.5 million on net revenue of C$54 million (which backs out excise tax included in gross revenue), with almost C$22 million in sales of recreational pot. In volume, it sold 7,000 kilos-worth of cannabis in December. That gave it the second-largest share of the Canadian market last year, after rival Canopy Growth (CGC).

Government statistics showed that recreational sales in Canada were disappointingly weak in the first months of 2019. That stemmed in part from a shortage of product on retail shelves after producers emptied accumulated inventories for Canada’s start of recreational sales last October. Aurora said that it suffered constraints in extracting high-margin cannabis oil in the March quarter, but said its extraction capacity improved after the quarter’s end.

Scaling up production has been a big focus for the company and Aurora doubled its production sequentially, to 15,590 kilograms of cannabis product in the March quarter. It expects to be producing at a 25,000 kg.- rate in the June quarter, its fourth fiscal period.

Investors have also been watching to see if international sales of medical cannabis would increase Aurora’s gross margins in its March quarter. Medical revenue grew 12% sequentially, to C$29 million.

Gross margins edged up to 55%, from December’s 54%. The company still hasn’t returned to September’s level of 70%, which pre-dated recreational sales. It has also wrestled with the scale-up of its large new Aurora Sky production facility near the airport in Edmonton, Alberta. High-margin sales of cannabis oil have been constrained during that expansion.

Cash costs of producing cannabis improved to C$1.42 per gram, from C$1.92 in December. But the increased sales of lower-priced recreational sales—now half of revenue—and Aurora’s difficulties producing enough cannabis oil reduced its average selling price for cannabis to $6.40 a gram, from the December quarter’s $6.80.

The company aims to get its production costs down around C$1 a gram by scaling up production. At large cultivation sites around Canada and Europe, Aurora plans to be producing over 600,000 kilos a year by the middle of 2020. High-tech greenhouses like the Aurora Sun facility in Medicine Hat, Alberta, will sprawl more than a million square feet. The company also has investments in a broad range of firms around the industry.

In Canada, Aurora has been a leading seller of medical cannabis, with nearly 70,000 registered patients at the end of 2018. It now has 82,745.

Most countries around the world that are legalizing marijuana are starting with medical regimes, so Aurora is building medical cannabis sales in countries like Germany, Denmark, and the U.K. Aurora says it’s started dozens of clinical trials to establish its products as treatments for chronic pain and seizures.

Unlike Canopy and Tilray (TLRY), Aurora hasn’t yet made a deal to receive investment from a major consumer products company. It brought on activist Nelson Peltz as “Strategic Adviser” to help change that, and its stock shot up in March on the news. Booth, the Aurora CEO, said Peltz is hard at work.

“He has been incredibly engaged, collaborative, and strategically focused on assisting our pursuit of growth in global markets and with mature companies in adjacent industries,” Booth said in a statement.

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