Aurora Cannabis has struggled to turn its cannabis business profitable. An analyst at BMO Capital Markets said Monday that without meaningful cuts, the company is still years away from sustainable profits.
Aurora shares (ticker: ACB) have shed 90% of their value in the past 12 months. The company has been cutting costs by closing growing facilities and reducing staff. Though it hoped to hit positive adjusted Ebitda during the first quarter of fiscal 2021, that goal has been bumped back to the second quarter.
New CEO Miguel Martin said in the company’s earnings release that Aurora had lost ground in the Canadian recreational marijuana market amid efforts to increase its lower-priced offerings. The company hopes to improve its footing for premium-priced pot.
Analyst Tamy Chen wrote in a note Monday that the sales volume needed to hit break-even adjusted earnings before interest, taxes, depreciation, and amortization could be three years away—absent a further reduction in selling, general, and administrative expenses.
“Because new management is trying to shift from value to more premium, we do not expect growth on a volume basis over the next 3 years until the company settles into a steady state market share, which we define as low-to-mid-teens %,” Chen wrote. “If ACB is successful in this shift, there should be revenue-dollar growth. Pending further visibility into ACB’s success in premium categories, our model currently projects modest dollar growth.”
She notes that if industry growth compounds at a rate of 40% or greater year-over-year for the next two years, the timeline for profitability could be shorter than she forecasts. Meaningful consolidation in the sector or stumbles by peers could also improve the picture.
But in the meantime, she expects continued dilution from the company’s at-the-market stock sales and believes downsizing in production is needed. She maintained a Market Perform rating, but lowered her price target to C$7 (US$5.28).
Aurora stock was up 0.9% to $4.62 on Monday, while the S&P 500 index was up 1.8%. The ETFMG Alternative Harvest ETF (MJ) an exchange-traded fund with exposure to the cannabis business, was up 4.6%.
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