Aurora Cannabis (NASDAQ:ACB) reported the latest results for fiscal Q2 2021 and it showed another quarter of massive dilution for existing shareholders. Our long-held view is confirmed that Aurora is structurally impossible to be cash-flow positive based on its existing business. We think the company will continue to burn tons of cash and investors will fund it by new equity issuances. It is going to be an endless dilution nightmare. Therefore, we are turning bearish on the stock due to its worsening outlook.
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We think there are three things that investors need to care about when it comes to Aurora: revenue, cash burn, and dilution. These three things dictate whether existing shareholders are going to be diluted constantly as the company has done since 2018 which led to a >90% loss of its share price.
Revenue is important because this is the only way Aurora could become a viable independent entity in its current form. Cost reductions are important but the company has cut to the bone and there is likely limited room left for further cost cuttings. Therefore, to reduce cash burn and eventually become cash positive Aurora absolutely needs to grow its revenue. However, the company once again failed to achieve revenue growth in its last quarter. The weakness was due to lower Canadian recreational sales which were made up by higher international medical sales. However, the trend is concerning because the overall Canadian recreational market grew during Q4, which means that Aurora lost market share. Canopy (CGC) reported a 9% QoQ sales increase and Aphria (APHA) cannabis sales grew 11% last quarter. So, the execution on sales has been disappointing which has the biggest impact on our negative near-term outlook for Aurora. Without top-line growth, Aurora will continue to struggle and burn through shareholders' capital.
