Aurora Cannabis (NYSE:ACB,TSX:ACB) enjoyed a jump in value on Thursday (February 13) despite reporting a drop in cannabis production and a higher earnings before interest, taxes, depreciation and amortization (EBITDA) loss in the second quarter of its 2020 fiscal year.
Shares of the Alberta-based company were up over 6 percent in Toronto early in the trading day on Thursday, a small reprieve from the massive drop of nearly 80 percent the company has dealt with over the last six months. As of 10:47 a.m. EST, it was at C$1.96.
Aurora’s cannabis production dropped 26 percent in the latest quarter to 30,691 kilograms, down from the 41,436 kilograms it produced in the previous quarter. The fall came as the company shifted towards a high-quality strain with a lower yield, it said in a press release.
The firm’s adjusted EBITDA loss was C$80.2 million this past quarter compared to C$39.7 million in its first fiscal quarter of the year. Total net revenue took a hit this past quarter as well, falling 26 percent to C$56 million; that’s down from the C$75.2 million reported in the previous three month period.
Aurora has recently been on a journey to profitability after announcing cost-cutting initiatives last week, including a 10 percent reduction in staff and millions of dollars in writedowns.
During an earnings call with investors on Thursday, interim CEO Michael Singer said factors like retail constraints, evolving consumer demand and provincial inventory adjustments have put pressure on the wider cannabis space in Canada.
“We firmly believe cannabis is a singular growth story, but as is the case with all growth industries we need to be patient as the markets evolve,” Singer added.
The firm’s global exploits were also lacking this quarter, with international medical cannabis net revenue at C$1.8 million, down from the C$5 million reported in Aurora’s first fiscal quarter; the fall was due to a permitting issue that paused sales of its products in Europe. Aurora said the problem has since been cleared up and sales have resumed as the firm fills backorders.
The company said it’s now moving forward with a renewed, cost-effective strategy as it focuses on the Canadian market and already established international markets.
CFO Glen Ibbott said Aurora expects its European presence, particularly its business in Germany, to grow in the short term, albeit slower than expected.
Though Singer noted the company remains bullish on the space, Aurora’s outlook remains tentative.
“Due to several short-term factors, there is likely to be a slower than previously expected rate of industry growth in the near-term,” Aurora said, adding that revenue in its third fiscal quarter will likely be impacted by the industry headwinds, with little to no sequential growth.
Excluding any provisions, Aurora said it’s looking at about C$65 million in revenue in Q3.
Among the company’s recent road bumps, Aurora lost its CEO Terry Booth last week as the longstanding executive retired from his role as the head of the company.
The departure was followed by a downgrade from CIBC Capital Markets analysts John Zamparo and Krishna Ruthnum, who slashed their price target in half to C$2.50 from C$5 in a note sent to clients.
Despite halving their target and warning of possible future downgrades, the pair said Aurora’s position is “not as precarious as peers” because of its sizable market share.
“We sense from management’s tone that all options are on the table when it comes to cost-cutting. It’s a change that’s as substantial as it is required in order to adjust to current Canadian (and international) market conditions,” Zamparo and Ruthnum added.
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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.