Aurora Cannabis says it's 'killing it' in Canada, so why aren't analysts excited?

Aurora Cannabis Inc. (ACB.TO)(ACB) just booked the biggest cannabis revenues in the industry, but analysts are paring back expectations as the company warns of “volatile” quarterly revenues and a sales “plateau” into the end of the calendar year.

Speaking on a conference call with analysts on Thursday, chief corporate officer Cam Battley said Aurora is “killing it in the Canadian consumer market with leading share.”

The Edmonton-based company now commands a 22 per cent slice of the recreational market, up from 19 per cent previously, according to GMP Securities.

Aurora reported $98.9 million in net revenue for the quarter, which missed the $100 to $107 million range the company had projected. Aurora blamed the miss on ancillary businesses such as analytical testing and patient counselling.

The company also missed its target of achieving positive EBITDA in its latest quarter, reporting a loss of $11.7 million, an improvement from a loss of $36.6 million in the third quarter.

Core cannabis revenues for the three-month period ended June 30 came at $94.6 million, roughly 60 per cent higher than the previous quarter, and the largest quarterly core cannabis revenue figure that any producer has recorded.

However, management warns quarter-to-quarter sales volumes and revenues may be “volatile” given the unpredictable expansion of retail stores in key regions like Ontario.

The logo for Aurora Cannabis displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., January 8, 2019. REUTERS/Brendan McDermid

“We specifically for us just want to call out the fact that there are constraints on the consumer system right now, and the provinces are starting to show that as well. We have seen in July and August where they're trying to work through some of the inventories that they have, and slowed their buying,” Aurora chief financial officer Glen Ibbot said on the call.

“We expected [growth] to pick up and continue to pick up through the next quarter, but...may take a bit of a pause just due to industry dynamics.”

“We're anticipating that there may be a bit of a plateau between now and the advent of the cannabis legalization 2.0 products, anticipated somewhere around the end of the year,” Battley added, referring to the release of edibles, vapes and other cannabis products expected to hit the market in December.

Canaccord Genuity analyst Matt Bottomley said Aurora’s record-setting quarter was overshadowed by the headline revenue miss.

“The company expects to see growth rates plateau into the coming quarters before reaccelerating heading into 2020,” he wrote in a research note. “Although the company believes that inflecting into adjusted EBITDA territory is still a near-term event, the company appears less certain if it will be able to cross this threshold by the end of the calendar year.”

Bottomley lowered his full-year 2020 gross revenue and adjusted EBITDA estimates. He maintains a “speculative buy” rating on the stock with an unchanged $13.50 price target.

GMP Securities analyst Ryan Macdonell notes Aurora’s quarterly revenue would need to top $157 million to achieve break-even EBITDA, given current selling, general and administrative expenses.

He lowered his target price to $12 from $15, dropped revenue and profitability forecasts, and maintained a “buy” rating.

BMO Capital Markets analyst Tamy Chen said Aurora’s share price remains elevated despite “execution uncertainties,” prompting her to cut her price target to $9 from $11.

“We have reduced our F2020 EBITDA forecast to a loss of $81 million from positive $33 million to reflect the reset in our revenue projections and our view that initial manufacturing costs for value-added products may pressure margins further due to the associated learning curves in the ramp period,” Chen wrote in a research note.

Toronto-listed Aurora shares climbed 2.32 per cent to $7.93 at 2:51 p.m. ET. New York-listed shares added 1.44 per cent to $5.97.

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