Investors Buy Aurora Cannabis Inc (TSE:ACB) Gap Down Post-Earnings

After a material gap down in Aurora Cannabis Inc (TSE:ACB) (NYSE:ACB) (FRA:21P) shares following the company’s 2Q 2019 earnings report yesterday, things are trending upwards. Backstopped by a strong generalized market condition, Aurora shares have recovered—and then some.

Following yesterday’s report—in which a bottom line $240M net loss had some “investors” crying foul—Aurora Cannabis buyers took advantage. After falling as much as ↓7.24% on-open, shares have roared back; trading higher $0.13 to $9.63 (↑1.37%) by publishing time.

In my estimation, today’s price action is being driven by the realization that Aurora Cannabis indeed produced a solid quarter. While I’m not convinced a clear “smoking gun” buy signal was presented, it was robust enough to send short speculators scrambling to cover recent gains on-open. The Canadian cannabis market—as represented by the Horizons Marijuana Life Sciences Index ETF—had fallen ↓14.31% peak-to-trough over the past 6-plus session.

Just pouring through the #’s now: My initial reaction: $ACB experienced a relatively benign quarter. Cash costs per g produced rose, but was an Aurora Sky opening thing. Margins were lower based on excise/lower avg. canna selling price/lower oil mix, but this was expected:

— Benjamin A. Smith (@BenjaminA_Smith) February 12, 2019

No way 70% margins were going to last (with any LP) sans excise tax, and cannabis prices will probably flatline/trend lower for the next several years. Derivative inv. loss of $240M doesn’t matter at this point, ex-impairment. A good amount of execution was made, incl. solid…

— Benjamin A. Smith (@BenjaminA_Smith) February 12, 2019

int’l growth (longer cycle). Happy with the SG&A cost discipline.

Overall, I myself don’t see a slam-dunk “wow” moment in the report, or any real negative surprises/disappointments. Will monitor upcoming ERs for evidence of further margin/cash cost degradation.

— Benjamin A. Smith (@BenjaminA_Smith) February 12, 2019

Expecting muted impact in tomorrow’s trading session, with bias (↓) towards minor price impact. I think the market’s AH reaction accurately reflects the ER portrait. Will tweet more reactions as warranted.

— Benjamin A. Smith (@BenjaminA_Smith) February 12, 2019

Aside from the higher Q-o-Q cash cost of sales per gram produced ($1.92/g vs. $1.45/g; mainly due to Aurora Sky ramp up—likely transient) and reduced margin profile (70% vs. 54%; mainly due to inclusion of excise tax, lower cannabis prices and lower oil mix), there were several positive takeaways in the report.

In the “Outlook” portion of the report, Aurora Cannabis explains that it’s now operating at an annualized production rate of approximately 120,000 kgs—based on Health Canada approved planted rooms—with another 150,000 kgs annualized coming online by March 31, 2019. Obviously, this all but insures the company’s hockey stick revenue curve will continue going parabolic. With more production streaming-in, the company will have approximately 25,000kg of cannabis available for sale two quarters from now, rising six-fold by the corresponding quarter in (Q4) 2020. To put that into context, Aurora Cannabis sold 6,999 kg of cannabis on 7,822 kg produced in Q2 2019.

Furthermore, Canadian and international medical markets showed solid growth, with aggregate sales of $26.0 million—up 8% in revenue and 23% in volume sold. Active registered patients rose a very solid 9% Q-o-Q, despite Canada’s foray into unfettered adult-use recreational markets. Some analysts had expected large licensed producer patient growth to stall out with cannabis being available over-the-counter at provincial outlets.

What comes next over the next few sessions is anyone’s guess. Aurora Cannabis is situated in the middle of a moderate bear impulse range between C$8.96-10.94, with a clear lower-high pattern firmly in place on the hourly. While the report hasn’t presented a clear near-term “wow” buying catalyst, it has painted a decided tale execution along the curve. Traders and investors have responded; not only in ACB stock but along the cannabis Tier-1 complex.

Midas Letter will have further coverage of post-earnings addendum events as warranted.

Original article: Investors Buy Aurora Cannabis Inc (TSE:ACB) Gap Down Post-Earnings

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