Cannabis Weekly Round-Up: Aurora Keeps Surging on US Market Entry

In the cannabis space this week, one major player stole the show, making headlines with its much-awaited entry into the US market. 

Aside from that, marijuana companies continue to release their latest quarterly earnings, with one market watcher speculating that this latest round of numbers marks an “inflection point” — he thinks industry dominance could shift to the US moving forward.

Read on for a closer look at some of the biggest cannabis news over the last five days.

Major share price surge for Aurora Cannabis

Aurora Cannabis (TSX:ACB,NYSE:ACB) released its latest quarterly results last Thursday (May 14), and has had a steady presence in the headlines since then.

The company’s share price initially spiked after it published numbers from its third fiscal quarter; it rose from last Thursday’s TSX close of C$9.20 to end at C$15.35 last Friday (May 15).

Its surge has continued this week, and as of this Friday (May 22) at 11:55 a.m. EDT, Aurora was up about 150 percent from last Thursday’s close.

During the latest quarter, the company brought in net revenue, excluding provisions, of C$78.4 million; that’s up 18 percent from the previous quarter. Adjusted EBITDA came in at a loss of C$50.9 million, but Aurora said it is on track to achieve positive adjusted EBITDA in its first fiscal quarter for 2021. 

Speaking to BNN Bloomberg, Michael Singer, chairman and interim CEO at the company, said that Aurora’s major restructuring effort several months ago is beginning to bear fruit. He also said that his team has been looking at the US market, describing it as an area that can’t be ignored. 

Aurora followed up on that last statement sooner than some may have expected, announcing this past Wednesday (May 20) that it will be entering the US cannabis industry with the acquisition of Reliva, a company that sells hemp-derived cannabidiol (CBD) products.

Reliva’s offerings include topicals, tinctures, gummies and more, and its products are sold in over 20,000 stores in the US; Aurora will pay US$40 million in the all-share deal.

As Aurora’s share price action indicates, investors have reacted enthusiastically to the deal. Analysts have responded positively as well, though with a little more caution — while CIBC analysts John Zamparo and Seth Rubin said in a note that they are positive on the deal, they also reminded market participants that the American CBD space is crowded.

“The worry on U.S. CBD is a saturated playing field could mean pricing declines and proliferating competition. Still, we view the deal positively, but the stock’s reaction both pre-market (+30%) and in the past week limits valuation upside in our view,” they said.

It’s worth noting that the response from experts to Aurora’s quarterly results last week was also cautious. CIBC’s Zamparo and Rubin noted that the company has “a long way to go to reach positive EBITDA,” though they said it has made “material progress” in a number of areas.

Rahul Sarugaser and Michael W. Freeman of Raymond James came down harder on Aurora, contrasting it with Organigram Holdings (TSX:OGI,NASDAQ:OGI) and Village Farms International (TSX:VFF,NASDAQ:VFF) in their own extensive note. In their opinion, the other two companies are stronger options that are better operated and consistently EBITDA positive.

Quarterly earnings spark US versus Canada comparison

Aurora’s results also sparked a comparison this week between the recent performance of Canadian and American cannabis companies in general.

In a Sunday (May 17) article, BNN Bloomberg said that US firms are “notably outperforming their struggling Canadian counterparts,” but their valuations are not benefting. The news outlet offered up the latest quarterly results from Aurora and Green Thumb Industries (CSE:GTII,OTCQX:GTBIF) as proof.

Green Thumb saw a modest 17 percent increase after becoming the first US marijuana company to bring in revenue of over US$100 million, while Aurora enjoyed a massive share price boost, as detailed above.

“I think this is an inflection point where the U.S. market is becoming the dominant market in the global marijuana space,” said Mark Noble, executive vice president of strategy at Horizons ETFs Management.

“I think the only thing that’s really keeping these stocks from overtaking the Canadian LPs is the fact that they’re not listed on the U.S. stock market,” he added to BNN Bloomberg.

As those involved in the cannabis space will know, the NYSE and NASDAQ, which are major American stock exchanges, do not allow companies with operations in the US to list because the drug is still federally illegal. Canada’s TSX and TSXV have the same rule. Cannabis companies working in the US must instead list on the countries’ smaller exchanges.

Cannabis company news

• The Green Organic Dutchman Holdings (TSX:TGOD,OTCQX:TGODF)signed a supply deal this week with a subsidiary of Shoppers Drug Mart. Under the three year agreement, the company will provide Shoppers with “a broad portfolio of certified organic medical cannabis products.”

• Harvest Health and Recreation (CSE:HARV,OTCQX:HRVSF) released its latest quarterly results, reporting US$45 million in revenue, which is an increase of 134 percent year-on-year. Adjusted EBITDA, excluding biological adjustments, came to a loss of US$3.9 million, but the company said it is on track to record positive adjusted EBITDA in the second half of 2020.

• HEXO (TSX:HEXO,NYSE:HEXO)closed an underwritten public offering for C$57.5 million on Thursday (May 21), selling 63,940,000 units for C$0.09 each. The money will be used for working capital and other general corporate purposes. In addition, HEXO announced that its share price no longer meets the NYSE’s listing requirements; it may be delisted if it does not regain compliance.

• Green Growth Brands (CSE:GGB,OTCQB:GGBXF) filed for insolvency protection on Wednesday, citing “a severe liquidity crisis” due to debt, which it says was exacerbated by conditions brought on by the COVID-19 outbreak. The company, which is known for its failed takeover bid for Aphria (TSX:APHA,NYSE:APHA), has seen a major share price drop over the last year or so.

• In its results for the most recent quarter, Trulieve Cannabis (CSE:TRUL,OTCQX:TCNNF) reported record revenue of US$96.1 million, up 116 percent from the previous year, along with adjusted EBITDA of US$49.4 million. Also this week, the company opened its 50th store in the US; of those 50 locations, 48 are in Florida.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.