It’s been a bumpy year for Aurora Cannabis (NYSE:ACB) as the industry as a whole saw investor sentiment start to turn negative. ACB stock has been hammered over the past few months as worries about the firm’s financial standing and future growth potential weighed on its share price.
Ahead of its Thursday earnings, Aurora stock is trading near $3.60 — nearly 60% lower than it was trading 6 months ago. However, the firm’s first-quarter results are unlikely to yield any details that will move the needle for ACB stock.
Here’s a look at what investors will be watching when Aurora Cannabis reports on Thursday after the bell.
Debt, Debt and More Debt
Perhaps the largest concern for ACB stock at present is the firm’s excessive debt load. The firm is dragging around $230 million CAD worth of convertible debt that comes due in March 2020. With that deadline right around the corner, the firm has very few options.
Of course, the issuer can choose to take shares of ACB stock instead of repayment, but as the share price has declined significantly, that option looks unlikely. That leaves taking on a new line of credit with the bank or turning to capital markets, where the appetite for pot stocks has declined considerably.
Investors will want to hear how management plans to deal with this upcoming deadline. This decision has the potential to further dilute shares, a choice shareholders will likely not receive well.
Vaping Concerns
Another key aspect of this quarter’s results will be ACB’s vaping business and the impact of recent health concerns. Many are concerned that the Centers for Disease Control and Prevention’s link between vaping and lung health could quash the marijuana vaping space.
Some point to the tobacco industry and its known risks as evidence that recreational vaping will move forward. However, while there are strong parallels between the two, its important to note that the marijuana market is not yet fully legal in the U.S., and vaping is only in the early stages.
The health risks posed by cigarettes were not identified until the industry was well-established. That means policymakers have the opportunity to weigh health risks before the industry is fully up-and-running and legislate accordingly. That could be a problem for companies like Aurora Cannabis that have committed to a growing vape market.
UFC Partnership
So far, ACB is one of the only major marijuana bets that hasn’t inked a cross-industry partnership with a larger, well-established brand. While investors are also keen to see whether Aurora has made any movement on that front, its partnership with the Ultimate Fighting Championship to enter the athletic CBD market is a key growth opportunity.
UFC and Aurora are teaming up to study whether or not CBD products are effective in treating pain. The results of the study could further growing interest among Americans in CBD products, and Aurora’s relationship with UFC could put the firm’s products front-and-center in a growing market.
Growth Concerns
The bottom line for ACB this earnings season will be growth — potential growth in particular. MKM Partners has lowered its estimates for ACB ahead of its results saying it doesn’t expect to see improving sales due to inventory issues and a lack of pricing power. MKM believes Aurora won’t be able to attain profitability by June 2020 as initially expected.
Investors will be looking for Aurora to lay out a clear path, and timeline, to profitability. Although Cannabis 2.0 in Canada won’t impact this quarter’s results, most will be looking for management to provide an update on how the firm’s products have been received.
The Bottom Line on ACB Stock
Although ACB stock has struggled in recent months, it doesn’t look likely to make a comeback anytime soon. That’s unless the firm secures a big-name partner over the next few months. Outside of that, investors will have to trust in management’s path to profitability.
For now, ACB looks too risky to be a buy, especially with its looming debt obligations in March.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.
