Aurora Cannabis Inc (NYSE: ACB) will report fourth-quarter results after the market close on Wednesday. Ahead of the release, Tim Seymour, CNBC host and portfolio manager of the Amplify Seymour Cannabis ETF (NYSE: CNBS), shared some predictions with Benzinga.
It’s important to note Seymour is bullish on Aurora, which currently represents the largest position in CNBS. Seymour believes the company will become EBITDA positive soon.
Having said this, he added, “despite being bullish on Aurora on a relative basis, valuations are still difficult to justify without an understanding of how realistic pro-forma expectations are. The industry also needs to be ready for asset impairment charges at some of the big players.”
Some Predictions For Q4
Aurora is the leading revenue producer in the cannabis industry, operating in the largest federally legal market in the world. Therefore, Seymour said it's "a critical company for investors to assess sequential growth, margin trends and how they are approaching new asset purchases and capex commitments."
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The company issued preliminary numbers in August, with revenue expected to come in between CA$100 million-CA$107 million ($75 million-$81 million USD). This would imply growth of more than 60% quarter-over-quarter.
"What will be of significance will be the gross margin numbers as their Canadian peers have struggled here (relative to the U.S. especially)," Seymour said. "Investors are demanding profitability now, and while management did not provide EBITDA guidance at the time they said there were major improvements to sequential gross margin/kg sold and cash cost/gram."
This is different from what Canopy Growth Corp (NYSE: CGC) reported.
"Expectations are they will be EBITDA positive in the near term. More indications of this impending profitability will be a major catalyst for the stock,” Seymour said.
Based upon this guidance, the company could prove profitability by the second quarter of fiscal 2020, according to Seymour.
“This would be a major boost for the industry, especially the Canadian LPs, much like Aphria numbers were," he said.
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