Aurora Cannabis has slipped below Nasdaq's US$1 minimum listing requirement after nearly two years of its commons declining. The switch from euphoria to dread has come at a high cost for the company, which has seen its market cap fall to US$300 million as cumulative losses get aggregated with a recreational cannabis market in Canada, where illicit sales account for around 40% of total spending. This has meant the creation of two separate regimes. The regulated and highly taxed regime where Edmonton, Alberta-based Aurora operates. The second regime is the buoyant black market, which still accounts for C$4 in every C$10 spent on cannabis in Canada. This has somewhat rendered the Canadian cannabis market a non-starter for long-term value creation, with revenue weakness and unprofitability being inherent in the highly burdensome structure of the first regime.
The company would report revenue of C$61.68 million, up 1.8% from its year-ago comp but with medicinal cannabis sales down 14% during the quarter. But in many ways, the results didn't matter. Aurora now operates in a zone now highly defined by uncertainty and fears aggregated over many years. The company is past the turnaround stage, with the slow-paced nature of the Canadian cannabis market leaving little room for a breakout performance. This describes the high taxes and centralized mode of distribution with low single-digit sales growth for some years now. Indeed, it's unlikely there will be a surge in legal cannabis sales in Canada all of a sudden without an extensive redraft of the current laws. The black market won't disappear, the high tax burden will remain in place, and any increases in the price of the average net selling price of dried cannabis will be short-term and short-lived.
The impact of this is mostly expressed in the compression of Aurora's retrospective valuation multiple, which has fallen to 1.33x. This, in effect, encapsulates the level of sentiment attached to each dollar of revenue earned. Higher multiples, which were north of 10x just over 2 years ago, capture periods of time when enthusiasm was more widespread among its shareholder base. The recovery of this in lieu of operational momentum will be the core driver of returns this year.
Cost savings progresses, but net loss maintains negative momentum
Aurora Cannabis reported full revenues of C$61.68 million for its last reported fiscal 2023 second quarter ending December 31, 2022. This was made up of medical cannabis sales of C$39.5 million, down 14% from its year-ago comp, and recreational cannabis revenue that increased by 2% year-over-year to reach C$14.6 million.
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