Aurora Cannabis (NYSE:ACB) shares are well off the highs in March, but it looks like the tides could be changing for the Canadian cannabis producer.
As it becomes clearer to the market that Aurora is best-in-class in terms of product innovation, production capacity, and overall footprint, ACB stock shareholders are primed to watch their investments appreciate.
Here’s why ACB’s production ramp-up and strong third quarter are great for the company’s reputation.
ACB Stock Is at an Inflection Point
Production capacity is about to take a big leap up. In the early part of this year, 150,000 kilograms per annum was the production scale. By next year, that 150,000 will increase dramatically to 650,000 kilograms of funded capacity across 15 production facilities.
The importance of ramping up production is twofold. Firstly, the economies of scale will allow ACB to deliver on its high-margin strategy. Achieving mass scale helps drive down the cost per kilogram of dry cannabis. Research and development is also a key factor in enhancing margins as innovation across new products increases pricing power for Aurora.
Secondly, more high-quality raw material ensures Aurora’s brand positioning as an experienced cultivator. Establishing consistency in meeting demand and with a superior product means more medical and consumer companies are likely to partner with ACB over other competitors.
As it stands, ACB already 40 clinical studies underway or completed and has served over 77,000 medical patients. Expect that trajectory to keep moving and up and to the right.
Canadian Consumer Market Launch Has Positive Results
Since March 2016, the compounded annual growth rate of quarterly revenue growth is a staggering 566%. If you have been looking for a company riding the winds of a high-growth industry, you need not look further.
As a result of the 18 strategic acquisitions up and down the value chain ACB has completed over the past three years, they now have a comprehensive portfolio of medical and consumer brands. One of the benefits of these tuck-in acquisitions is expanding its distribution network. That network covers close to 98% of the Canadian population.
The company’s successful launch in the Canadian consumer market is a microcosm of what is to come across the rest of its global markets. Four of the top five best-selling dry products in British Columbia are either under their Aurora brand or MedReleaf brand. San Rafael ’71 and AltaVie have also made big strides in improving brand presence.
ACB Keeps Delivering on Growth
The result of the relentless execution on a high-margin strategy and selective acquisition are financial figures that show the approach is working.
Aurora had another strong third quarter. Net revenue increased 20% over the prior quarter and 305% year-over-year. In tandem, cash cost to produce decreased 26% over the prior quarter and 7% year-over-year. It’s not rocket science to know that this combination over the long-term is very positive for the sustainability of the business. Revenues up and cost down means more earnings to invest back to the business or return to shareholders.
Kilograms sold was also up substantially: 31% over the second quarter volume and 577% over the previous year. All cylinders are firing for ACB stock, and it’s headed in the right direction.
As of this writing, Luce Emerson did not own any of the aforementioned securities.
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