Apr 28, 2022
[2 min Read]
Since early 2019, Canadian healthcare companies have lagged the wider market. Before Canada legalised marijuana for recreational use over three years ago, most of these domestic marijuana companies were on a run. Since then, however, these businesses have been hurt by lukewarm demand, which may be ascribed to the slower-than-expected deployment of retail outlets in key Canadian provinces.
This in turn led to high inventory levels, massive write-downs, and negative profit margins. A thriving black market further exacerbated these issues and the emergence of COVID-19 impacted demand as well.
A Canadian Cannabis stock that went public in July 2017 which is also popular on social-media platform StockTwits is Aurora Cannabis Inc.. The company closed trading at 52 weeks high of $10.64 per share, and have since declined by a staggering -25.6% to currently trade at $2.83.
While StockTwits might not be the best source of quality investment analysis it provides us with a proxy for retail investment trends for a particular company. You can track the real-time trends across Twitter, Stocktwits, and Google with the Social Sentiment Dashboard, which is where I sourced this data from. Given the rapidly expanding cannabis market, ACB stock might seem like the ultimate contrarian bet for investors, but it also carries significant risks.
As cannabis producers including Aurora Cannabis Inc. are grappling with huge losses and cash burn, they have raised equity capital several times in the past resulting in shareholder dilution. In the last 6 months, ACB issued 6.41M shares.
Analysts expect Aurora Cannabis Inc. to narrow its losses to $-3.02 per share in 2022. However, given its outstanding share count, it suggests the company will post over $-21.56M in losses on estimated sales of $245.25M in 2022.
ACB ended the quarter with a balance of $421.46M giving it enough liquidity to improve margins over time. However, if the company aims to gain traction via acquisitions, it will need to raise additional equity capital to maintain a debt-free balance sheet.
In the Q1 of 2022, Aurora Cannabis Inc. has issued 6.42B common shares at an average price of $2.83.
In 2022, Aurora Cannabis Inc. has looked to reduce its product portfolio and focus on high-margin items to improve its bottom line.
Here, Aurora Cannabis Inc. will provide growth capital to companies in the cannabis sector and deploy capital strategically through direct and indirect investments.
In Q1, Aurora Cannabis Inc.'s revenue stood at $60.11M which was significantly lower by -218.8M than its year-ago revenue of $278.91M. However, its cost of revenue stood at $34.66M indicating a positive gross margin.
In 2022, Aurora Cannabis Inc.'s operating income was $-246.65M which was significantly lower than the prior-year loss of $-486.88M.
ACB stock is valued at a market cap of $1.19B which means its forward price to 2022 sales multiple is really steep making it a high-risk bet for investors.