Aurora Cannabis ACB Stock Forecast & Analysis

Aurora Cannabis ACB stock was once the absolute darling of cannabis investments.  ACB Stock forecast at the time was a moonshot of cannabis stocks.  But, reality has set in with Aurora Cannabis and ACB stock investors.  I wanted to outline what is going on with Aurora Cannabis and get the ACB stock forecast out into the sphere.

While there were big dreams starting out with cannabis federal legalization in Canada, the reality was far different.  Realistically, too many big companies thought they could all build enormous facilities and sell low-cost cannabis all through Canada.  The wholesale cannabis market completely collapsed in Canada. This is when many of the biggest companies realized that consumers were only interested in premium branded products, that the market could only bear so much inventory, and the business models were unsustainable.

Aurora Cannabis proceeded to board up facilities and downsized as best they could.  Operating costs have been cut as best possible; still a far cry from where they need to be.  Gross margins still are long away from being competitive.  If there is one thing I have picked up after evaluating over 100 cannabis stocks, it is that it is very difficult to grow excellent cannabis, consistently, and inexpensively.

That was over two years ago, and still, Aurora Cannabis has yet to get to the level necessary to sustain itself. Margins are still not even close to be able to compete against some of the biggest companies.  This is not to say that eventually, Aurora Cannabis will go bankrupt as much as it is to say they simply have far more work to do.

Aurora Cannabis – First to Report

Aurora Cannabis ACB stock is one of the more important cannabis stocks for two big reasons:

• Nasdaq-Listed
• First To Report
• Widely followed

As of right now, I have 108 stocks that I cover on this site.  They are all pure-play cannabis growers, producers, & sellers.  We are just finishing up with end-of-year 2021 for cannabis stocks.  I still have about 20 – 25 stocks that have yet to report.  But, a lot of these stocks are delayed simply because it is end of year.  Nonetheless, Already, however, Aurora Cannabis (And Tilray TLRY stock) has reported for Q1 2022.  Effectively, earnings season for 2021 is over and we are already moving into 2022.

Being a Nasdaq-listed stock, Aurora Cannabis is an important stock because of deep access to a wider pool of investors (OTC stocks are not tradable at certain brokerages).  Because of this bigger pool, ACB Stock is important as it will get a lot more traffic with searches and trades.

And, because so much was pined about ACB stock in the past, Aurora Cannabis is one of those cannabis stocks that could be a barometer for the overall cannabis investments sector.

Should ACB Stock turn upward

As I mentioned, ACB stock becomes important because of what it potentially could do for the overall broader cannabis stocks investments.  Should Aurora Cannabis do well, and ACB stock turn upward, this could draw in a lot of outside investors wanting to capitalize on cannabis stocks turning upward.

Cannabis Federal Legalization & Aurora Cannabis ACB stock

Aurora Cannabis is predominantly a Canadian cannabis company where cannabis federal legalization has already occurred.  But, here in the United States, we are just on the cusp of cannabis federal legalization.  Expectations are for the Senate bill to drop sometime this summer and a vote to occur thereafter.  But, the market is also holding out for the vote on this to happen prior to the general election in November of this year.

The Democrats have promised cannabis federal legalization and, this is the time to do it.  Should this follow through, all cannabis stocks will head upward.  Aurora Cannabis ACB stock is one of those stocks.

However, there really is not a big amount of correlation between Aurora Cannabis and cannabis federal legalization in the United States.  Because of that, I would recommend taking the money and running if you are in this stock and there is an  excited surge in cannabis stocks from federal cannabis legalization.

Aurora Cannabis Latest Financial Release

Here is a look at the latest financial release for Aurora Cannabis.

Aurora Cannabis Gross Profits

Revenues are not increasing, they are decreasing.  This is having the effect of a deterioration across the board for Aurora Cannabis.  Gross revenues narrowed last quarter.  Gross margins also declined meaning that on a percentage basis, what Aurora Cannabis is retaining of its total revenue is a smaller portion than previous.

In order to get ahead, the exact opposite needs to occur.  Aurora cannabis needs to see continually increasing revenues and with that better performing gross margins.  This is the only way to increasing competitively competing against other firms and showing that margin ratios are outperforming.

But, gross revenue declines are not the only issue that Aurora Cannabis has as the Canadian company also is seeing its total equity decline as well as margins in other areas underperforming, including operating margins.

Aurora Cannabis Operating Profits

As it turns out, the back office costs a lot for Aurora Cannabis.  In fact, from a revenue standpoint, Aurora Cannabis’ back office is costing over 100% of revenue.  Total operating costs, and by extension, operating profits and operating margins, are in a position that are actually deteriorating.  This is partly because of the math involved in total operating costs, divided over gross revenues yields operating efficiencies.  Since gross revenues are declining, operating efficiencies are deteriorating.

This is the effect of too many big companies coming in to Canada all at once, with fists full of cash, building extraordinarily large quantities of operational grow facilities.  Then, when all of these companies started putting product on shelves, prices crashed because too many players had far too much infrastructure.  This is one of the reasons why I like Avant Brands as much as I do because they are a smaller company that focused on quality, not quantity.

Aurora Cannabis has been shuttering and selling off its production levels.  But, they have not cut costs in the back office nearly sufficiently.

Aurora Cannabis EBTIDA & Net Profits

In a fledgling endeavor, a company needs to quickly achieve EBTIDA profitability in order to show that the business model could potentially be profitable.  Once EBITDA profits are achieved, then a company needs only scale up revenues to achieve net earnings profitability.  And, the marginal profits on the increasing products working through the system will be outsized.  That is the magic of EBITDA profits.

We are told that Aurora Cannabis is going to hit this number this quarter, Q4, 2022.  Let’s see.  If Aurora Cannabis does hit this number this will be a significant milestone and, one can expect there is likely to be a fireworks show afterwards.

Despite having a plan, once a cannabis company sells its first product, the next major milestone is to achieve EBITDA profitability via scaling up sales & revenues, and achieving an economies of scale that will show that the business can become profitable.  Competitive gross margins would be a solid start.  Those would come in ~55%; higher if you were a far better-performing cannabis stock.

Aurora Cannabis has made significant strides in its cost-cutting within operating costs, and I am thinking that further scaling up of revenue would get them to a much better position.

Combining gross profit margins & operating profit margins to getting toward 22.5%, collective, less Depreciation & Amortization, would get Aurora Cannabis to EBITDA profitability; albeit, modest levels.

There is some work to be done to getting Aurora Cannabis to EBITDA profitability.  But, they tell us we see this next quarter, so fingers crossed.  I’ll nibble on this.

Aurora Cannabis Cash On Hand

Relative to debt, Aurora Cannabis has plenty of cash on hand.  Further, many institutions are involved in Aurora so, very likely if Aurora ever needed more cash, this would not be a difficult task.  But, relative to debt, Aurora is sitting very competitively at 62%.

Nonetheless, Aurora Cannabis also has a burn rate that is not doing them well.  Eventually, Aurora Cannabis would run out of cash on hand.  Certainly, Aurora Cannabis would not have any difficulties in raising more debt.

But, capital raises via debt financing dilute the current picture.  Taking on more debt to prolong an endeavor that is like spinning tires in mud makes this a difficult sell to me.  I would want to invest in a cannabis company that is increasing revenue continuously, improving margins and profitability, and expanding its foundation.  In a word, I am looking for the best cannabis stocks.

Not so sure Aurora Cannabis is at that level.

Aurora Cannabis Total Equity

Just as Aurora Cannabis has plenty of cash on hand, they also have minimal debt relative to assets; they have a strong balance sheet.  This, also, is the reason Aurora Cannabis will be able to continually raise cash.  At the same time, however, assets and upward-climbing equity is the engine of producing increasing revenues.  Assets are things like dispensaries and grow facilities that will continually give a company the capacity to produce and then sell products.

And, while assets are what drive the potential for future revenue and potentially profitability, in the case of Aurora Cannabis, I do not see a picture forward for either: Aurora Cannabis needs to increase revenue.  Period.

Aurora Cannabis ACB Stock Forecast

Aurora Cannabis ACB Stock DCF

I have a couple of companies that get the distinction of having only double-digit growth potential based upon using the DCF.  Unfortunately, Aurora Cannabis is coming in negative given the information we have available at this time.  The question is, does Aurora Cannabis hit its EBITDA positive target this quarter.  If so, I will have to adjust these numbers.  In the meantime, I lowered my stock target price for ACB stock.

Is Aurora Cannabis ACB Stock A Good Investment?

I have been hopeful for some time that Aurora could be a turn-around story.  As I have said, Aurora Cannabis was one of the darlings of cannabis investments in Canada but, only to fall flat.  Many people own this stock that rushed into green gold.  Should these investments start producing profits, this could draw in more and more investors into cannabis investments.  So, it is an altruistic dream that these behemoths succeed.

Aurora is not succeeding despite any hope I may have had. Eventually, if the industry turns around and there is a surge in stocks, and you were in this stock, it is very possible that you could see some gains.  But, all cannabis investments are weighted down right now and so all stocks are likely to surge equally.

I would recommend getting out of this one and waiting for another lull in investment activity and then acquiring other stocks.  Aurora Cannabis has a long way to go before I can see potential profits.

There is a high likelihood that when cannabis federal legalization hits in the United States, many will surge into cannabis stocks and push valuations higher.  This will be artificial.  If this happens to ACB Stock, my recommendation is to take the money and run.  Then, when stocks settle down, find other cannabis stocks that have more improved metrics… and upside potential.