Why Shares of Aurora Cannabis Slumped 14.6% This Week


What happened

Shares of Aurora Cannabis (NASDAQ:ACB) fell 14.6% this week as of Thursday, according to data from S&P Global Market Intelligence. The Canadian marijuana company closed at $4.46 a share on Friday of last week, opened at $4.37 on Monday, and dropped to as low as $3.79, its 52-week low, by Thursday afternoon. The stock is down more than 63% over the past year and has a 52-week high of $18.98.

A worker inspects cannabis leaves in closed-system laboratory.

Image Source: Getty Images.

So what

Aurora had plenty of company with its moribund week. The NASDAQ is down 4.4% for the week, and marijuana stocks are also down significantly, with the Advisor Shares Pure Cannabis ETF falling 10.34% over the past five days. This follows a trend that has been taking place since early last year.

However, Aurora’s problems are deeper because the company has seen declining revenues. The company’s net revenue for fiscal 2021 was a reported 245.2 million Canadian dollars ($192.41 million), down 8.7% over fiscal 2020.

In the company’s 2022 first-quarter report, which included the period through Sept. 30, 2021, the company reported revenue of CA$ 60.1 million, down 11% year over year but up 10% sequentially. While medical marijuana revenue was listed at CA$ 40.9 million, up 23% over the same period in 2021, revenue from consumer cannabis fell 44% to CA$ 19.1 million. The lone bright spot on the report was that adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) represented a loss of CA$ 12.1 million, an improvement over a loss of CA$ 19.7 million year over year.

Now what

In the short term, the stock is likely to get a slight bump from bargain hunters seeing that it has hit its 52-week low.

In the long term, however, the cannabis stock isn’t likely to see its shares rise significantly until it can show it is headed in the right direction, particularly with its adjusted EBITDA. It is expected to release its second-quarter report in early February. Aurora CEO Miguel Martin, in his company’s Q1 earnings release, said he expects Aurora to be EBITDA positive by the first half of fiscal 2023. If it doesn’t seem to be headed in that direction, the company’s stock could take another tumble.

Canadian cannabis stocks have had a tougher time than their U.S. counterparts because of tighter regulatory controls and a greater prevalence of COVID-19 lockdowns that have hurt business. As those concerns work themselves out, there is opportunity for Aurora growth.

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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