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It Makes Sense to Lay off Aurora Stock Ahead of Next Week’s Earnings

Tom Taulli

Since late March, Aurora Cannabis (NYSE:ACB) stock has been in a fairly tight trading range. But next Tuesday we may see some action. Yes, the company will report its fiscal third quarter results. No doubt, it will be a critical, as investors will want to get a sense of how the Canadian recreational market is tracking, and after the Cronos Group (NASDAQ:CRON) letdown, there might be some concern about Aurora stock.

Aurora stock

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Now as for the prior quarter for Aurora stock, the company handily beat its own estimates. Revenues hit $40.7 million for the quarter, up a sizzling 83% on a quarter-over-quarter basis. Note that the company had put out a forecast of $37.6 million.

Although, the losses were hefty, coming to $178.6 million. A big reason for this has been the aggressive M&A strategy, which means that the company has to make adjustments for mark-to-mark accounting. Consider that there have been 15 deals since the summer of 2016.

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A Closer Look at Aurora Stock

So what about the expectation for Aurora stock for Q3? Well, as should be no surprise, the growth is likely to continue at a robust pace. The consensus is for revenues to come to $55.3 million and the loss be 4 cents a share. But given that the cannabis opportunity in Canada is in the nascent stages, the forecast is likely to be more of an educated guess.

There were certainly other notable highlights during the quarter. Here’s a look:

  • The company signed a binding agreement to acquire Chemi Pharmaceutical, which is a privately-held Ontario lab that focuses on analytics for the pharma and cannabis industries. A key asset is the Health Canada Drug Establishment Licence that allows for performing certified GMP compliant quality control testing. The company will be merged into Aurora’s Anandia Laboratories subsidiary.
  • Aurora announced it has purchased the remaining shares of Hemco, which is a top provider of hemp-based foods, fiber and nutraceuticals. The company is also commissioning its 56,000 square foot hemp processing facility for the extraction of CBD.
  • The company completed its acquisition of Whistler Medical Marijuana Corporation, which is one of the top premium cannabis brands in Canada. The deal should allow for expansion in both medical and consumer markets. Consider that the production capacity is expandable to over 15,000 kg.
  • Aurora received approval to sell cannabis oils to German pharmacies. In fact, the company is already the market leader in the country.

Bottom Line on ACB Stock

When it comes to ACB stock, there are both short-term and long-term tailwinds. No doubt, right now much of the growth will come from the Canadian market. The good news is that the company has been able to effectively scale its operations. Production is expected to go from 150,000 kg per year to more than 500,000 kg per year by mid-2020.

As for the long-term catalysts for ACB stock, there is the medical business. The company has about 40 clinical trials and has also built a strong distribution footprint in Europe and Latin America. Just a small number of new therapeutics can have a big impact on the top-line.

But there is another key factor for ACB stock: The company has appointed Nelson Peltz as a Strategic Advisor. He is the CEO and founding partner of the Trian Fund, which is a top investment firm that’s focused on the consumer products sector.  It has stakes in companies such as Procter & Gamble (NYSE:PG) and Mondelez International (NASDAQ:MDLZ).

In other words, Nelson will likely be critical in helping ACB find major strategic partners to help propel the growth, similar to what other cannabis firms like Canopy Growth (NYSE:CGC) and Cronos have done. So yes, on the earnings call, it’s a good bet that analysts will want to hear how things are progressing on this front.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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