Aurora Cannabis, Canopy Growth Earnings Are Disconnected From Current Share Price

Canopy Growth Corp. (NYSE: CGC) reported second-quarter fiscal 2021 results before markets opened Monday. The marijuana grower and distributor posted a net loss per share of C$0.09 (about $0.07) on net revenue (excluding excise tax) of C$135.27 million (about $103.9 million). In the same period a year ago, the company reported earnings per share of C$0.75 on revenue of C$76.61 million. Analysts had estimated a net loss of C$0.36 ($0.28) on sales of C$117.76 million ($90.5 million). The Canadian company is also listed on the Toronto Stock Exchange under the ticker symbol WEED.

Canopy Growth stock, along with other Canadian pot stocks, has been on a tear. After dropping to $19.00 on the day after the U.S. elections, the stock closed the week at $23.50, a gain of nearly 24%. Early Monday, the hit stock 52-week high of $26.95.

Net revenue for the quarter reached an all-time high, primarily due to higher recreational sales in Canada, vaporizer sales and the company’s 2019 acquisition of health and nutritional provider BioSteel.

Gross margin of 19% was 1,400 basis points higher than in the year-ago quarter. In the first quarter of the 2021 fiscal year, gross margin fell by 1,300 basis points to 6%, which Canopy Growth attributed to $8.7 million in operating costs related to facilities that were not yet producing cannabis, lower production, and a charge of $1.2 million related to inventory adjustments.

Operating expenses (total SG&A) dropped 19% year over year, largely the result of sales and marketing costs that fell by 30% due to job cuts taken in prior quarters.

The company withdrew fiscal year 2020 guidance in May and has not provided 2021 guidance. Analysts have a consensus estimate for a per-share loss of C$0.31 ($0.24) in the December quarter on sales totaling C$132.25 million ($101.62 million). For the full year, analysts are looking for a net loss of C$1.27 ($0.98) per share and revenue of C$508.37 million ($390.64 million).

Aurora Cannabis Inc. (NYSE: ACB) also reported quarterly results before markets opened Monday morning. In its fiscal first quarter of 2021, the company said it had revenue of C$67.81 million ($52.11 million) and a net loss per share of C$0.92 ($0.71). Analysts had estimated a per-share loss of C$0.04 ($0.03) and revenue of C$64.14 million ($49.29 million).

For the current quarter, analysts are looking for a net loss per share of C$0.27 ($0.21) on revenue of C$73.01 million ($56.1 million). For the 2021 fiscal year, estimates call for a per-share loss of C$1.21 ($0.93) and revenue of C$317.86 million ($244.25 million).

Aurora’s adjusted EBITDA loss totaled C$57.9 million, nearly double the loss in the same period last year. The company attributed the loss to a “legal settlement and contract termination fees and costs associated to ongoing severance and benefits associated with the business transformation plan.” Excluding these costs, R&D, and other restructuring expenses adjusted EBITDA fell to C$10.5 million, a number the company called “the third sequential quarter of significantly improved Adjusted EBITDA.”

Nearly half of Aurora’s total cannabis revenue comes from sales of medical marijuana, compared to about 43.5% of Canopy Growth’s revenue.

Last week’s rapid run-up in cannabis stocks could have been kick-started by the results of the U.S. election. President-elect Joe Biden has said that he favors lifting the dangerous drug restriction on cannabis. The immediate impact (on Wednesday), however, was negative. The run-up didn’t begin until Thursday and strengthened on Friday.

A word of caution here. We could be looking at a short squeeze. As of mid-September, Canopy Growth had about 3.0% of its float sold short, while about 2.6% of Aurora’s shares were short. Those are huge positions, but a sharp run-up could have sent short sellers racing for the exits. If that’s the case, these share prices will drop back nearly as quickly as they soared.

Monday morning, Canopy Growth stock traded up about 7.7% at $25.30, in a 52-week range of $9.00 to $26.95. The consensus price target on the stock is C$23.35 ($17.94).

Aurora Cannabis stock traded up about 19%, at $11.61 in a 52-week range of $3.71 to $45.48. Its consensus price target is C$9.71 ($7.46).

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