On Monday, February 11th, the cannabis world got a solid look at earnings from one of the biggest producers in Canada after legalized sales of adult-use cannabis began. However, during that same time, there was a major stock market sell-off. Legal adult-use cannabis in Canada began on October 17th of last year. That is about the same exact time that world stock markets sold off significantly. Aurora cannabis (ACB) sold of some 58% from its October 16th peak of $12.53 before recovering modestly and then moving even further lower (ultimately moving below $5.00 a share):
With the world’s first industrialized country totally legalizing cannabis nationwide, the world was very interested in seeing how the major players fared with revenues during that time. Remember, on the first day of sales of adult-use cannabis, the entire country of Canada ran out of cannabis. Because of that, expectations were high for sales figures for cannabis companies.
Aurora Quadruples Income; Takes Loss for Quarter
Aurora nearly quadrupled their sales revenue during the quarter which the legalization began to $54M in sales. But, the real standout was the fact that Aurora took $237M in losses. However, these losses were due to the fact that Aurora is invested in several other companies within the cannabis industry. And, as I mentioned earlier, the entire stock market sold off sharply over the course of the period – Aurora did a mark-to-market of -$190M in losses in their portfolio. If you look up at the chart above, most of the stocks – along with Aurora’s – sold off during that period of time. But, these stocks have mostly recovered all of their losses so Aurora will see the revers mark-to-market results in the next quarter if these stocks maintain their levels. Here is a chart on the MJ ETF, a cannabis investing basket of pot stocks:
Aurora also was a standout in their sales of cannabis across the country. Aurora claimed some 20% of gross sales throughout the country. While the statistics are still coming in, this places Aurora at the higher end of market share. If Aurora were to continue to capitalize on this market share and build into the burgeoning industry, they could potentially hold on to a market share that is likely to measure approximately $500 billion in annual sales. While the cannabis industry is a ways off from those levels, this is a realistic market outlook as cannabis is set to capture business from beer, wine, liquor and pharmaceuticals across the world.
Cannabis is still a new industry and a lot of statistics are coming out. As investors and analysts, we are still learning in this brand new landscape. With Aurora’s size and their market share, the economies of scale will work their way in and eventually Aurora will become a market leader in a very large industry. I am heavily long on this industry and I am also long Aurora cannabis as I see the big, long-term picture. I am looking for a total of some $5 billion in legal, adult-use cannabis sales in Canada. Aurora has already captured 20% of the initial sales of adult-use cannabis. If the company continues on that track for the remainder of the year they could see $1 billion in revenue. But, their revenue potential beyond that is even more impressive as the company is in the process of completing facilities that will enable them to produce some 1 million kg. of cannabis per year, a $5 billion potential revenue capability. From that, if Aurora hits its goals the company could be worth some $20 billion. Currently, they are only valued at about $7.5 billion. There is significant upside potential with Aurora Cannabis for long-term value investors.