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After a tough end to 2018, marijuana stocks have produced huge gains to start the new year. Even with a gain of 55% in the first five weeks of 2019, Aurora Cannabis (NYSE: ACB) isn't the top performer in the cannabis market, but many see it as having one of the best opportunities to become the leader of the budding marijuana industry.
Aurora Cannabis will release its fiscal second-quarter financial results after the market closes on Monday, Feb. 11, and investors are hoping that the cannabis company will be able to show an impressive run-up in revenue. Yet the company has already weighed in with some preliminary results, and they weren't entirely positive -- casting some doubt on just how well Aurora will do in standing up to the marijuana investing hype.
Stats on Aurora Cannabis
| Metric | Current Stat |
|---|---|
| EPS estimate | (CA$0.06) |
| Last quarter's EPS | CA$0.12 |
| Revenue estimate | CA$51.8 million |
| Change from last quarter's revenue | 75% |
Data source: S&P Global Market Intelligence. Last quarter refers to fiscal first quarter of 2019.
Can Aurora keep up its momentum?
Investors have high hopes that Aurora Cannabis can keep up its positive momentum from recent periods. In the first quarter of fiscal 2019, Aurora managed to produce sequential revenue growth of 55%, coming in at CA$29.7 million. That number was more than triple what Aurora had in sales during the year-earlier quarter, showing the steep growth trajectory that the cannabis company has been able to produce in a short period. More importantly for many investors, the fact that Aurora was able to show a profit was a good sign for the emerging industry -- although there were numerous ways in which the company was able to produce bottom-line gains that partially hid the extensive costs that it continues to incur in its growth efforts.
Yet Aurora Cannabis has already given investors some cause for concern coming into its February report, releasing preliminary numbers for the fiscal second quarter that suggest weaker performance than some had hoped to see. Back in January, Aurora said that revenue would come in between CA$50 million and CA$55 million for the quarter, which was far less than more optimistic shareholders had been looking to see. At the time, consensus forecasts had projections of anywhere from CA$60 million to CA$75 million.
Image source: Aurora Cannabis.
The primary problem is a major disconnect between the expectations that investors have for developments in the Canadian recreational cannabis market and the reality of the situation. Despite having had advance notice of the size of the opportunity in Canada, Aurora and other producers weren't able to line up capacity increases quickly enough to be ready for the rollout. At the same time, the market infrastructure for actually making sales of recreational cannabis products wasn't entirely in place, especially in some key provincial markets within Canada. Meanwhile, regulators have been overwhelmed with the number of companies seeking to get into the marijuana business, and issuance of required permits and licenses has slowed to a crawl, holding up key projects for expansion across the industry.