MKM analyst Bill Kirk downgraded the stock of Aurora Cannabis Inc. ACB,
ACB,
to sell on Friday, after the company’s second-quarter tax earnings released late Thursday fell below expectations. The numbers were “worrying on two fronts,” Kirk wrote in a note to clients. The company’s cannabis use revenue of C $ 28.6 million ($ 22.5 million) fell 17% from the first quarter and to its lowest level in the second quarter of 2019, he wrote. Also, the company’s guide to positively adjusted EBITDA failed to materialize and showed deterioration in the first quarter. “We do not see a way to reduce costs or increase positive EBITDA in the short term,” Kirk wrote. “For the outlook, Aurora collected more COVID-related subsidies in Q2 than it generated in gross profit dollars.” Aurora may continue to market its flower offering by outsourcing sales functions and may struggle to stand out from rivals and supply surplus in the Canadian market, Kirk said. With pricing pressure still at play, the company’s decision to push increases by several premium price points “seems like a recipe for consumer / province frustration,” the analyst said. In an industry that is now showing years of sequential growth, Aurora has sold fewer recreational weeds in that quarter than in any full quarter since Canada fully legalized cannabis in October 2018, he wrote. “From the company’s credit, Aurora has a strong IP from its acquisition of MedReleaf and strong brands in San Rafael and Whistler (both acquired),” Kirk said. “They will try to prioritize around those offers, but we believe that moving back to higher priced products will be difficult. Withdrawal from the sale while maintaining 9 PT of C $.” Aurora shares have fallen 4.2% in the premarket and down 17% in the last 12 months, while the Cannabis THCX ETF,
gained 99.9% and the S&P 500 SPX,
gained 16%.