2019: The Year We’ve All Been Waiting For
This week both cannabis giants Canopy (CGC) and Aurora (ACB) (arguable #1,2 of the sector) both released their earnings. For many reasons investors have been eagerly waiting for these earnings for years and it was going to prove that cannabis was not only an economically viable industry , but more importantly, that it would be time for companies to finally deliver on these lofty promises.
We will go into these numbers here in-depth, but the thesis of this piece and the overall story these financials tell is that one company is sustainable, the other isn’t. It will become pretty clear soon which is which.
‘In business, cash is oxygen.’ – Gary Vaynerchuk
Canopy received a monumental investment from Constellation Brands last year to the tune of $5 billion dollars, with that amount of money Canopy would have to do some really horrid business moves to be in financial trouble, which is why their current cash position is $4.1B, up from $322.6M the previous year. Aurora on the other hand does not have this luxury, and has burnt through exactly half of its cash in a single quarter, dropping from $548.4M to $274.6M.
At this burn rate, it’s hard to make the case for Aurora being sustainable at this rate, but, Aurora being Aurora I am sure they have some tricks up their sleeve for improving this situation.
Although, if they create anymore paper climate change activists may start to protest.
I’ll show myself out.
Another worrysome stat for Aurora is their asset value has flatlined, while Canopy’s has gone up 8X.
Canopy 1 / Aurora 0
Larger losses are expected as the industry gets started. While in-curing a large loss isn’t ideal, Canopy is in a far better position to take that loss with its current cash position. I don’t think anyone will fault these companies for taking a loss, but, when we look into Aurora’s numbers more closely the fact that 50% of their working capital is gone, combined with their loss, it should be a cause for concern.
Canopy lost $167.3M, while Aurora lost $237.7M.
Much of Aurora’s loss can be attributed to several large investments in companies who have been underperforming lately such as: The Green Organic Dutchman (TGOD), HempCo (HEMP), Radient Technologies (RTI) and Namaste Technologies (N).
Canopy 2 / Aurora 0
Revenue, the big number we have all been waiting for. It’s finally time to see if the companies can deliver on their lofty pitch deck goals of being able to sell cannabis at a huge magnitude, and if the two giants of the industry can’t, then who can?
The numbers are a lot lower than they could have been in the Canadian government was better equipped at rolling out the legal system. For those living outside of Canada who aren’t aware of the amount of regulations the country has, a business owner in my old Vancouver neighbourhood was fined $3,000 for having a park bench outside of his cafe that stood 1 foot too close to the curb.
Canada LOVES regulations, and the cannabis industry has been no exception.Including big delays on product roll out due to stamps, yes stamps – which has lead to huge product shortages in several retail locations, no wonder why the black market continues to thrive.
That being said, revenue numbers aren’t bad, and are sure to go up as the government gets more organized and more Canadian cannabis is exported into other continents.
I won’t spend any time on ‘projected revenue’ because that’s SO 2017!
Canopy outdid Aurora on net revenue $83M to $54M, respectively. Canopy’s revenue jumped 282.4% , while Aurora’s jumped 83% from the previous quarter.
Canopy 3 / Aurora 0
At the end of the day, Canopy wins 3/3 and is the stronger company of the two.
Some may think judging Canopy vs. Aurora isn’t fair as Canopy is clearly the top dog in most people’s minds. However, Aurora’s COO Cam Battley has time and time again called the company an ‘industry leader’, and so have its investors, so we will treat it as such.