MKM analyst Bill Kirk downgraded the shares of Aurora Cannabis Inc. ACB,
ACB,
to sell on Friday, after the company’s second-quarter tax profits published on Thursday were below expectations. The numbers were “worrying on two fronts,” Kirk wrote in a note to customers. The company’s $ 28.6 million ($ 22.5 million) marijuana consumption revenue fell 17% from the first quarter and at its lowest level since the second quarter of 2019, he wrote. The company’s guidance for positive adjusted EBITDA also did not materialize and showed a deterioration in relation to the first quarter. “We don’t see a cost cut or growth path that will lead to positive short-term EBITDA,” wrote Kirk. “For one thing, Aurora raised more in COVID-related subsidies in 2Q than it generated in gross profit dollars.” Aurora may be further commoditizing its flower offering by outsourcing its sales functions and may find it difficult to distinguish itself from rivals and oversupply in the Canadian market, Kirk said. With price pressures still at stake, the company’s decision to push grows to more premium price levels “looks like a recipe for consumer / province frustration,” said the analyst. In an industry that is now showing years of sequential growth, Aurora sold less recreational marijuana in the quarter than in any entire quarter since Canada fully legalized cannabis in October 2018, he wrote. “To the company’s credit, Aurora has some strong intellectual property from its acquisition of MedReleaf and strong brands in San Rafael and Whistler (both acquired),” said Kirk. “They will try to premium around these offers, but we believe that switching to higher priced products will be difficult. Disqualify to sell, keeping our C $ 9 PT.” Aurora shares fell 4.2% before the market and 17% in the last 12 months, while Cannabis ETF THCX,
gained 99.9% and the S&P 500 SPX,
gained 16%.
