MKM analyst Bill Kirk downgraded shares of Aurora Cannabis Inc. ACB,
ACB,
to sell on Friday, after the company’s second-quarter tax gains posted Thursday at the end fell short of expectations. The numbers were “worrisome on two fronts,” Kirk wrote in a note to clients. The company’s consumer cannabis revenue of C $ 28.6 million ($ 22.5 million) fell 17% from the first quarter and was at its lowest level since the second quarter of 2019, he wrote. The company’s positive adjusted EBITDA orientation did not materialize either and showed a deterioration with respect to the first quarter. “We don’t see a cost reduction or a growth path that will reach positive EBITDA in the short term,” Kirk wrote. “Looking ahead, Aurora raised more COVID-related grants in Q2 than it generated in gross profit dollars.” It is possible that Aurora is further commercializing its flower offering by outsourcing sales functions and may struggle to distinguish itself from rivals and oversupply in the Canadian market, Kirk said. With price pressures still at stake, the company’s decision to push grows to get higher-end prices “seems like a recipe for consumer / province frustration,” the analyst said. In an industry that is now showing years of sequential growth, Aurora sold fewer recreational herbs in the quarter than in any full quarter since Canada fully legalized cannabis in October 2018, he wrote. “For the company’s credit, Aurora has strong intellectual property from its acquisition of MedReleaf and strong brands in San Rafael and Whistler (both acquired),” Kirk said. “They will try to improve the bids around those bids, but we believe the shift to higher priced products will be difficult. Downgrading to selling, keeping our PT at $ 9C.” Shares of Aurora fell 4.2% ahead of the market, and have fallen 17% in the last twelve months, while the Cannabis THCX ETF,
has gained 99.9% and the S&P 500 SPX,
has gained 16%.