Aurora Cannabis Inc. (NYSE:ACB) had an extremely productive fiscal third quarter. Metrics looked very positive across the board: solid revenue growth; active registered patients up; cash cost to produce per gram down; production volume increased materially.
Everything is heading in the right direction.
ACB has even announced that famed activist investor, Nelson Peltz, joined the company as a strategic adviser. Although activists typically made headlines by giving company management a hard time, he is with Aurora in a collaborative capacity to help with their global expansion and partnership opportunities. This is a big win for ACB stock as Peltz’s network and business perspective will prove very useful, especially on the expansion front.
Confidence in Outlook
ACB delivered solid Q3 revenue growth that averaged 20% in all key markets. Canadian consumer was up 37%, Canadian medical was up 8%, and international medical was up 40%. Aurora has expertly scaled production managed it sales channels.
It may not be the dizzying revenue growth of Tilray (NASDAQ:TLRY), which increased 195% year-over-year, but ACB had solid and sustainable stats that can be replicated for many quarters out.
On the cost side, since ACB has been very focused on getting its facilities to run at full capacity, they have been able to lower cash costs per gram. In the most recent quarter, Aurora cut costs to $1.42, 26% lower that the prior quarter, and an improvement year-over-over of 7% as well.
Now with the Aurora Sky growing facility operating at full capacity, those costs should keep trending down. Management expects that the average cash cost to produce per gram at its Sky Class facilities will be below $1. This will help get them to their EBITDA positive goal.
What This Means for ACB Stock
What this all means is that ACB stock is on track to delivery positive EBITDA in Q4 2019. This, of course, is if all goes as planned. The company continues to execute in all channels and improve pricing and volumes in parallel. If this happens, there could be a bit move upward in the stock.
And for a space that has seen soaring valuations, ACB actually turns out to be favorably valued for investors looking to buy.
Using the market cap per kilograms sold as a valuation metric, ACB stock also looks much cheaper than other cannabis companies. Based on quarterly metrics, ACB is valued at $969,000 per kilo sold. Marijuana stocks like Canopy Growth (NYSE:CGC) and Tilray are both selling for around $1.5 million per kilo sold.
So, from this valuation perspective, at current levels Aurora looks much more attractive than its peers.
What’s Ahead for ACB Stock
In addition to being on track to deliver positive EBITDA in Q4, Aurora is also on track to increase sales meaningfully with production facilities targeting over 25,000 kg of cannabis available for sale. With production ramping, this allows management the flexibility to craft its new product line. Vapes and edibles will be ready to launch in Canada by calendar year-end.
Across the pond in Europe, once Aurora’s receive production facilities receive EU GMP certification, supply to international markets will get a big boost. The company’s Bradford facility recently underwent an audit in an effort to get that EU certification.
With Aurora Cannabis Inc. executing at a rapid pace and with the results to show for its efforts, ACB is a compelling buy as one of the best cannabis stocks.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.
