Is Aurora Cannabis Stock a Buy?

Aurora Cannabis (NYSE:ACB) had a disastrous 2019. Much of the decline in its share price was due to the company’s reckless spending, along with external headwinds. It lost 56% of its stock value in 2019, worse than last year’s 36% slump of the industry benchmark — Horizons Marijuana Life Sciences Index ETF.

However, the company is making every possible attempt this year to rebound and recapture the cannabis market. Its efforts included shutting down unproductive facilities, reducing the workforce to conserve cash, and diluting its stock through a reverse stock split — which isn’t appealing to investors, who do not see diluting stock as a positive sign. Aurora opted for a 1-for-12 reverse stock split in May to save its stock from getting delisted from the New York Stock Exchange when its stock price dropped below $1. Diluting stock isn’t necessarily a bad thing, if it helps the company grow its earnings and boost the stock price. However, that’s not what happened with Aurora. The company is still struggling to stay afloat.

Given an up-and-down year, investors were hoping to hear some sort of positive news from the company’s recent first-quarter fiscal 2021 report, released Nov. 9. But the report was a disappointment, dragging the stock deeper into the abyss. So far this year, Aurora’s shares are down 72%, while its peer, Canopy Growth (NASDAQ:CGC), has seen its stock surge by 12%. Meanwhile, the industry benchmark has slumped 13% over the same period. Let’s take a detailed look at the results and determine whether there are signs of recovery for Aurora in the near future.

Cannabis edibles, gummies and a marijuana bud

Image source: Getty Images.

Cannabis derivatives could be a key market for Aurora to rebound

For the quarter ended Sept. 30, Aurora’s total cannabis net revenue sank 8% year over year to 67.8 million Canadian dollars.

The fall was mostly due to a sales decline for Aurora’s Daily Special value brand, which management says lost market share due to new entrants and increased competition in the cannabis flower category. However, the good news was a CA$3.6 million increase in consumer cannabis extract net revenue driven by higher-margin products, including cannabis-derivative products. Cannabis derivatives include vapes, edibles, concentrates, and beverages. Canada legalized these nationwide in October 2019 as a part of “Cannabis 2.0” legislation.

The company hasn’t launched any new derivatives in months, and management didn’t discuss any new rollouts in this quarter’s call. I am not surprised by this, given that Aurora’s main focus now is to conserve cash by reducing expenses and not spending more on new products. However, it’s important for Aurora not to lose out on the opportunity of this…

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