IB Net Payout Yields Model

Aurora Cannabis: Supply Rationalization Needed Now

Canadian cannabis industry inventories continue to surge with over 300K kg in supply and monthly demand below 10K kg.
The industry needs to rationalize capacity with store forecasts of only 600 retail locations by the March quarter.
A stock price of $5 and a market cap of ~$5.5 billion remain lofty for breakeven EBITDA and FY20 revenue targets of $521 million.
The cannabis bulls continue to claim that a lack of retail stores and legal supply has kept sales low, while the data doesn't support the thesis. No doubt, sales will increase substantially as retail stores in Canada grow, but the market is headed to a major over supply scenario led by market leader Aurora Cannabis (ACB). My previous research had the stock approaching a potential buy point near $5, but the latest Health Canada stats for June have the industry at a critical inflection point that needs immediate action.
Read the full article on Seeking Alpha. 
More commentary - WhoTrades

Update September 16
No surprise here. ACB is down over 8% today on a predictable downgrade following a bad quarter.

ACB downgraded to Sell with a C$5 (36% downside risk) at Stifel citing "less robust in-market performance" and challenges with "positioning for the larger global opportunity." Analyst Andrew Carter also believes financing will be more difficult considering negative investor sentiment towards the sector.

Update September 13
interesting find from a reader... Aurora Cannabis is exploring the Canopy Growth move to enter the U.S.

“What I do expect is within a very short period of time we’ll be entering into the U.S. with another point of entry, and a significant one,” Battley told Marijuana Business Daily in a phone interview.
-“We’re learning what the strengths and weaknesses are of (multistate operators) and other business models, so we are definitely laser-focused, short term, on CBD derived from hemp, because that can be done now. It’s fully permissible now.
-“We’re also looking at stuff that may be more complicated and may require for us to be clever along the lines of what Canopy did.”

Update September 11
ACB managed to miss preliminary numbers of at least C$100 million... wow. The company isn't anywhere close to being adjusted EBITDA positive.

Q4 adjusted EBITDA loss of C$11.7M.
Revenue of C$98.94M misses by C$4.57M.
Disclosure: No position mentioned. Please review the disclaimer page for more details. 


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