Why Aurora Cannabis Stock Popped Today


What happened

Shares of marijuana company Aurora Cannabis (NASDAQ:ACB) jumped 3% as of 3 p.m. ET on Monday.

You can thank its competitor Tilray (NASDAQ:TLRY) for that.

So what

In a surprise announcement this morning, Tilray said it was able to cut so much cost from its reverse merger with Aphria last year that it ended up earning $6 million in its fiscal second quarter 2022 — versus losing $89 million a year ago. Additionally, the company said revenue for the quarter increased 20% year over year to $155 million, with “strong” adjusted gross margins of 43%.  

Tilray stock popped more than 11% on the news.

Rising stock chart is labeled Cannabis Inc with dollar signs and marijuana leaves decorations.

Image source: Getty Images.

Now what

Granted, this is primarily good news for Tilray. But investors are also taking it as a foreshadowing of how profitable Aurora Cannabis might one day become if it is able to duplicate Tilray’s success.

There are, however, a few caveats that could interfere with that happening. Right now, Tilray boasts the “#1 cannabis market share in Canada” and says it’s also “#1 in Germany” and the “international medical cannabis market leader” to boot. The economies of scale from its large size — plus the even larger size that comes with its merger with Aphria — helped Tilray cut $70 million a year from its cost structure, according to the company.

Now here’s the problem for Aurora Cannabis (and its fans): According to data from S&P Global Market Intelligence, the marijuana company is currently operating at an annual loss of more than $220 million — which has been true for the past three years running. So for Aurora Cannabis to duplicate Tilray’s feat, it would need to cut three times as much cost from its operations as Tilray has in order to become profitable.

I’m not saying it’s impossible for Aurora, with less than half Tilray’s market share, to do what Tilray has done. I’m just saying it seems unlikely.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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