Canada-based Aurora Cannabis (ACB +2.91%) has been on a downward spiral for the past few years. Industry headwinds, as well as some of Aurora's own actions, dragged the stock down, causing investors to lose faith in the company.
Aurora has left no stone unturned to achieve positive earnings before interest, taxes, depreciation, and amortization (EBITDA). Despite cutting costs by shutting underperforming facilities and making acquisitions in a bid for growth, it failed time and again to hit its target. However, its most recent quarterly results came as a big surprise. Let's look at both the positive and negative aspects of investing in Aurora's stock right now.
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Bull case: Aurora hit its target of achieving positive adjusted EBITDA
Aurora was once a popular Canadian marijuana stock. The company and its peers benefited from high demand in Canada after the legalization of recreational marijuana in 2019. However, regulatory challenges and pricing pressure created a demand-supply imbalance, hurting revenue for the majority of companies. Aurora's balance sheet had already been strained by its acquisition spree at the time.
Since then, the company has tried and failed numerous times to reduce costs and achieve positive EBITDA. Aurora's recent fiscal 2023 second quarter ended Dec. 31 provided a ray of hope for investors. The company finally achieved a positive adjusted EBITDA of 1.4 million Canadian dollars ($1.03 million), a significant improvement over the previous year's adjusted EBITDA loss of CA$7.1 million.
While many Canadian players are still experiencing falling revenue, Aurora's net revenue rose 2% year over year to CA$62 million. Revenue increased by 20% sequentially.
To boost revenue further, Aurora may find good opportunities in Germany. According to the company's management, it was the second-largest producer of cannabis flowers in the country. Aurora is also one of Germany's three licensed growers of medical marijuana. When recreational cannabis is legalized in Germany, having a solid foothold could be extremely beneficial to Aurora.
The company also expects Poland, the U.K., the Czech Republic, and France to be promising markets.
NASDAQ: ACB
Key Data Points
Bear case: Stock dilution could still be an issue
Aurora argues that it has the best balance sheet in the Canadian cannabis industry. It had $310 million in cash and $65 million in restricted cash at the end of the quarter. This is good news for the time being, but the company has raised the majority of its capital through stock offerings. Raising capital by selling stock does not sit well with investors because it is frequently interpreted as a failure to raise capital through other means. New share issues also dilute the value of existing stockholders.
Meanwhile, the business is losing money. It reported a net loss of CA$67 million in the second quarter of fiscal 2023, compared with a loss of $CA52 million in the first quarter. However, losses in the latest period were lower than the CA$75.1 million loss in Q2 fiscal 2022.
Should investors buy Aurora Cannabis now?
Though the company met its goal of positive EBITDA this quarter, it must do so in the future to regain investors' trust. Aurora Chief Executive Officer Miguel Martin assured investors during the earnings call that the company will "deliver positive adjusted EBITDA on an annualized basis going forward." However, because of the volatile nature of the cannabis industry, Martin also stated that it may not occur in every quarter.
Although the quarterly results were good news for Aurora, I would still advise investors to hold off on investing in the stock for the time being. It is prudent to avoid this marijuana stock until it generates profits and positive cash flow. Beyond that, the cannabis industry has much better companies that have the potential to make investors money in the long run.
