Aurora Cannabis Inc. (TSX: ACB.TO) (NYSE: ACB.N) released its quarterly earnings yesterday, the first of the major marijuana companies to do so this quarter. Analysts and investors expected some major growth, and the company didn’t disappoint. Aurora’s quarterly net income grew from $3.6 million to $104.2 million.
What’s left to determine is the impact that Canadian recreational-cannabis use legalization will have on sales, and thus future stock price. Although it’s too early for Aurora to report post-legalization revenue, investors and analysts will watch this report closely. Indeed, certain metrics in this quarter’s report can help gauge future revenues.
Rising production cost probably not a trend
The cost of sales per gram is a key metric on analysts’ radar. The cost of sales will paint a picture of which companies are lean operators, and which have higher cost structures.
As cannabis companies report this quarter’s revenues, that information will separate the wheat from the chaff of marijuana producers. Aurora reported this morning that it spent CAD $1.90 to produce a gram of dried cannabis.
According to Glen Ibbott, CFO, in Q1 2019, the company “continued to propel Aurora’s growth making critical investments in our corporate, sales, and marketing talent and capabilities. A significant portion of our Q1 2019 marketing spend was in preparation for the adult consumer use market with numerous branding and market awareness initiatives.”
“With more restrictive marketing regulations in effect as of October 17th, we will see a significant reduction in average marketing spend over the remainder of the fiscal year. We also anticipate a reduction in other one-off expenditures, such as the integration costs related to the MedReleaf, CanniMed, and Anandia acquisitions.”
Sale prices on the rise
Another key metric is the company’s average selling price. That figure can help those interested in future earnings estimate how much they may be earning post-legalization. Aurora’s average price of dried cannabis was CAD $8.39 per gram of dried flower and CAD $12.12 per gram of extract.
Higher prices for dried-flower product, together with a consumer shift toward oils, brought their margins up 12% to 70% compared to Q1 2018. Nevertheless, that cost was slightly higher than in Q1 2018 due to higher packaging costs. Costs to increase packing are attributed to MedReleaf’s higher packaging costs and new Cannabis Act regulatory requirements.
The company is producing over 150,000 kilograms of cannabis products annually, and expects that number to increase to 500,000 kilograms per year in 2019.
Highlights from the quarter
The company also released some operational highlights that illustrate their adaption to legalization. They noted that roughly 30 percent of Ontario’s online store’s products are Aurora brands. Moreover, they supplied 2 of the 3 top-selling products on that website.
In British Columbia, Aurora reported that it supplied the top 4 selling dried flower brands. The company also sold 3 of the top 8 selling oil and capsule brands. In Prince Edward Island, Aurora and its subsidiary MedReleaf were 2 of the 6 top among the licensed producers (LPs).
“We continue to successfully execute our differentiated and diversified strategy committed towards domestic and international expansion in the medical cannabis market, adult consumer use sales, production scale-up, innovation, plant and medical research, and product development,” said Terry Booth, CEO of Aurora.
“Our initial roll-out success demonstrates how our high-quality Aurora Standard products and well-positioned brands resonated strongly with the consumer market and our preparedness for the logistical challenges in effectively bringing our products to market. Given the strong unmet consumer demand evident across Canada, we are confident that our rapidly increasing production capacity will result in continued acceleration of revenue growth.”
International growth and acquisitions
Mr. Booth added, “We also continue to perform well in our international medical business. With the acquisition of ICC Labs, which we expect to close in the coming weeks, we are establishing leadership in Latin America. In addition to ongoing international growth and expansion led by our team at Aurora Europe, we were also the first non-government organization to export medical cannabis to Poland, a medical market with a population roughly equal to Canada.”
“Across our international activities, we have established significant early mover advantage and market leadership. With the scale-up of our domestic and international production facilities, we anticipate increased availability of product to service these developing markets which will drive further global growth for the Company.”
Mr. Booth went on, “As a science, medical and patient focused organization, we are committed to continue serving our patients with the products they require. As we built up inventory levels in anticipation of the adult consumer use market, we prioritized product availability for our over 67,000 existing patients.”
“With production ramping up, we anticipate once again pro-actively driving additional growth in this core medical segment, both domestically and internationally.”