As Aurora Cannabis (NYSE:ACB) reported third-quarter results for 2020, the company’s stock surged by 69% to $11.20. Improved results coupled with a business transformation plan triggered the rally for Aurora stock.

It might not make sense to consider fresh exposure to a stock that has surged by nearly 69% in one trading session. However, considering the company’s plan, the stock is worth keeping in the investment radar. The coming quarter will provide insights on the impact of the plan. Continued positive developments will make Aurora stock attractive.

In recent quarters, the biggest concern for investors was the cash burn. It implied continued equity dilution, which does not make the stock attractive. This challenge has been addressed by the company in the transformation plan.

As an example, the company reported selling, general and administrative expenses of CAD$80.1 million for Q3 2020. The company intends to reduce this expense to the range of CAD$40 to 45 million.

Similarly, for Q3 2020, the company reported capital expenditure of CAD$73.7 million. This implies an annualized capital expenditure of CAD$280 million. The company is intent on reducing the quarterly investments to CAD$50 million.

If these two objectives are achieved in the next few quarters, the cash burn is likely to decline significantly.

The idea is to focus on the Canadian consumer and medicinal markets. In addition, the focus will only be on few established international markets.

In May, the company also decided to dispose of the Hemp business in Europe. This will allow the company to invest solely in core cannabis operations. This makes sense as growth remains relatively muted in international markets, but wider operations accelerate the cash burn.

Cannabis 2.0 Products and Aurora Stock

Slowing down the cash burn addressed just one of the challenges. Another key challenge is to trigger higher top-line growth. In addition, achieve higher sales of products that garner higher margins.

I can say with some conviction that medicinal cannabis growth is likely to remain muted in the coming years. The reason is that without evidence-based medicinal cannabis, the adoption of these products is likely to be slow.

The U.S. Food and Drug Administration has just approved one drug that comprises an active ingredient derived from cannabis. Aurora Cannabis is moving in the right direction with clinical trials. However, it will be a few years before results start to show in terms of approval, mass production and top-line growth.

Therefore, the focus is likely to be on consumer cannabis to trigger growth. In December 2019, Aurora Cannabis launched cannabis 2.0 products that include vapes, concentrates, gummies, chocolates, baked goods and mints.

Further, in February, the company launched “Daily Special,” which is a value brand. The objective is to compete with the cheaper illegal market.

The results are showing with Q3 2020 consumer cannabis revenue increasing by 68% as compared to the second quarter. If this trend sustains, it’s likely to be positive for Aurora stock.

Importantly, if cannabis 2.0 product sales gain traction, margin expansion is likely. Therefore, the next few quarters will be critical. For this period, the company has ample liquidity buffer after taking into consideration the recent at-the-market common share offering.

My Concluding Views on ACB Stock

I believe that survival and slow growth is the right way forward for all cannabis companies. Consolidation in a few markets is more important than trying to be a global leader and suffering significant cash burn.

Aurora Cannabis has taken the right step towards lowering cost and focusing on a few markets. In the coming quarters, cash burn will decline. However, it remains to be seen if the consumer cannabis segment can drive growth. On the other hand, progress related to clinical trials can also trigger an upside for Aurora stock.

Overall, there is hope for the survival of Aurora Cannabis as the company scaled down operations. Aurora stock will be attractive if top-line growth adds to the positive related to cost-cutting.