Investors Buy Aurora Cannabis Inc (TSE:ACB) Gap Down Post-Earnings

Benjamin A. Smith
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After a material gap down in Aurora Cannabis Inc (TSE:ACB) (NYSE:ACB) (FRA:21P) shares following the company’s 2Q 2019 earnings report yesterday, things are trending upwards. Backstopped by a strong generalized market condition, Aurora shares have recovered—and then some.

Following yesterday’s report—in which a bottom line $240M net loss had some “investors” crying foul—Aurora Cannabis buyers took advantage. After falling as much as ↓7.24% on-open, shares have roared back; trading higher $0.13 to $9.63 (↑1.37%) by publishing time.

In my estimation, today’s price action is being driven by the realization that Aurora Cannabis indeed produced a solid quarter. While I’m not convinced a clear “smoking gun” buy signal was presented, it was robust enough to send short speculators scrambling to cover recent gains on-open. The Canadian cannabis market—as represented by the Horizons Marijuana Life Sciences Index ETF—had fallen ↓14.31% peak-to-trough over the past 6-plus session.

Aside from the higher Q-o-Q cash cost of sales per gram produced ($1.92/g vs. $1.45/g; mainly due to Aurora Sky ramp up—likely transient) and reduced margin profile (70% vs. 54%; mainly due to inclusion of excise tax, lower cannabis prices and lower oil mix), there were several positive takeaways in the report.

In the “Outlook” portion of the report, Aurora Cannabis explains that it’s now operating at an annualized production rate of approximately 120,000 kgs—based on Health Canada approved planted rooms—with another 150,000 kgs annualized coming online by March 31, 2019. Obviously, this all but insures the company’s hockey stick revenue curve will continue going parabolic. With more production streaming-in, the company will have approximately 25,000kg of cannabis available for sale two quarters from now, rising six-fold by the corresponding quarter in (Q4) 2020. To put that into context, Aurora Cannabis sold 6,999 kg of cannabis on 7,822 kg produced in Q2 2019.

Furthermore, Canadian and international medical markets showed solid growth, with aggregate sales of $26.0 million—up 8% in revenue and 23% in volume sold. Active registered patients rose a very solid 9% Q-o-Q, despite Canada’s foray into unfettered adult-use recreational markets. Some analysts had expected large licensed producer patient growth to stall out with cannabis being available over-the-counter at provincial outlets.

What comes next over the next few sessions is anyone’s guess. Aurora Cannabis is situated in the middle of a moderate bear impulse range between C$8.96-10.94, with a clear lower-high pattern firmly in place on the hourly. While the report hasn’t presented a clear near-term “wow” buying catalyst, it has painted a decided tale execution along the curve. Traders and investors have responded; not only in ACB stock but along the cannabis Tier-1 complex.

Midas Letter will have further coverage of post-earnings addendum events as warranted.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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