Aurora Cannabis' Marijuana Stock Drops 8% Despite Sales Growth, Analysts Downgrade To 'Sell'

Despite an impressive annual sales growth, the shares of Canadian marijuana player Aurora Cannabis tumbled Monday 8 percent after analyst Andrew Carter of Stifel Nicolaus designated it “sell.”

The analyst’s note expressed long term concerns over the stock.

Aurora recently reported a wider-than-expected fiscal fourth-quarter loss and also missed revenue targets.

In the note, Carter examined the latest quarterly results in detail and reversed the “hold” rating he had given three months ago. The analyst also slashed the price target on the Canada-listed stock to C$5 (US$3.78) from C$7 ($5.29).

In the past three months, Aurora stock has been down 27.9 percent compared to other cannabis stocks. But it is the most held stock in trading app Robinhood and products including medical marijuana are listed on Weedmaps.

Good sales growth

According to reports, the Canadian cannabis company ramped up production capacity in the past one year and produced 57,442 kilograms of cannabis. It sold 36,628 kilograms in fiscal 2019. That was a healthy growth of 920 percent and 629 percent over the previous year.

The higher production capacity gave it a 349 percent year-over-year increase in sales revenue that touched CA$247.9 million.

After the Q4 results came out, the analyst had said the stock will be coming under pressure and push capital markets for a “significant ask” to fund its growth plans.

On Monday Carter said Aurora’s efforts to dig into the capital markets will be “challenged” as “overwhelming negative investor sentiment” exists in the cannabis sector. The credibility is down and no catalysts are apparent to drive investor enthusiasm.

Outlook sees downside potential

The analyst’s note titled “The headlines were bad, the details were worse” said the fourth-quarter results point to a “less robust in-market performance” and hinted the difficulty in positioning for a larger global opportunity.

The outlook suggests a significant downside potential for the Aurora stock and that the company will “remain challenged until it can attract investment from a consumer partner.”

It is high time Aurora had a consumer partner, the analyst said. The competitors such as Canopy Growth Corp that aligned with Corona-beer parent Constellation Brands and Cigarette seller Altria Group partnered with Cronos Corp have shown the way.

Carter said going forward Aurora will find it constraining to compete with rivals in the global cannabis market until it has a well-established consumer partner.

The advantage of partnerships is the significant capital “de-risking” as seen in Canopy Growth and Cronos. Aurora, by standing solo faces the risk of volatility in the equity markets.

The analyst also slashed the company’s full-year sales forecast to 485 million Canadian dollars from CA$600 million.

Carter also sees a delayed break-even on in Aurora’s EBITDA. He sees it coming in the first quarter of fiscal 2021, while the consensus is that it can happen in Q3 of fiscal 2020.

Meanwhile, another marijuana player Tilray is aiming for fresh funding. In a regulatory filing, Tilray said it would issue fresh stock and raise $400 million. Accordingly, a secondary issue of Class 2 Tilray stock is expected.