Don’t Believe Aurora Marijuana’ Success Spin

Don’t Believe Aurora Marijuana’ Success Spin

When the Canadian cannabis manufacturer uses the word “successful,” it does not actually mean successful.

Keith Speights

Aurora Marijuana( NYSE: ACB) lastly made the move that investors have actually anxiously awaited for a long period of time. The Canadian marijuana manufacturer announced last week that it participated in an agreement to purchase Reliva, which boasts one of the top-selling CBD brands in the U.S. market.

Investors cheered the news that Aurora will quickly be able to delve into the big U.S. CBD market. Several of the company’s top competitors, including Canopy Growth and Cronos Group, already have a presence in the U.S.

Aurora specified that Reliva is “profitable today” and will supply the company with a leading hemp CBD brand that’s currently sold in more than 20,000 retail places in the U.S. Don’t think Aurora Marijuana’ profitability spin.

Dollar sign with a question mark shadow

Image source: Getty Images.

Changes required

Reliva is privately held, so there aren’t public documents readily available that offer information on the business’s financial performance. Nevertheless, Aurora Marijuana interim CEO Michael Vocalist shared some interesting information in an interview with MarketWatch recently.

This represents only a fraction of Aurora’s yearly sales. Reliva might extremely well become a significant development driver for Aurora.

The more eyebrow-raising thing that Vocalist said is that Reliva isn’t rewarding on a GAAP basis, the accounting standard by which U.S. companies report their financial outcomes. Rather, the small CBD company has actually just generated revenues on an adjusted basis.

Often, adjusted earnings provide investors a more precise photo of how well a company is performing. For example, one-time costs that do not affect a business’s continuous efficiency can be factored out. It’s impossible to know right now all of the modifications that Reliva makes to be able to report its “success.” A few of those changes might not be as defensible as one-time expenditures.

The bottom line is that we truly do not know how Reliva’s true bottom line looks. What we do know is that Aurora’s press release revealing the acquisition stated that Reliva was profitable (with no caveats or explanations) which it took a follow-up interview for financiers to find out the remainder of the story.

Unprofitable profitability

It’s not unexpected that Aurora would refer to an adjusted monetary number as being profitable, though. The business’s executives often do it when they go over Aurora’s financial future.

For example, Singer talked about the company’s cost-cutting moves in his remarks throughout Aurora’s Q3 conference call earlier this month He mentioned that these relocations will “fuel success” for Aurora.

If you’re not familiar with EBITDA, the term stands for revenues prior to interest, taxes, devaluation, and amortization. Generating favorable EBITDA is a good idea, especially for Aurora, which posted negative adjusted EBITDA of 50.9 million in Canadian dollars in the third quarter. Positive adjusted EBITDA is categorically not the exact same thing as profitability.

Aurora believes that it will have the ability to provide favorable adjusted EBITDA by the first quarter of fiscal 2021, which ends on Sept. 30,2020 However the Canadian cannabis manufacturer will still be losing money even if it achieves this objective. The business has over CA$246 million in loans and loanings for which it must pay interest. And while Aurora has actually benefited from tax recoveries in the existing , eventually paying taxes will negatively impact its financial results.

Note also that the word “changed” is still being used. Unlike the situation with Reliva, however, we have a pretty good idea of which changes Aurora can take with its EBITDA figure because the regards to its financial covenants for its financial obligation center spell them out.

Beyond the spin

The good news for Aurora is that it seems making solid progress toward its objective of creating favorable adjusted EBITDA by the end of September. The company’s acquisition of Reliva ought to also be positive over the long run as the U.S. CBD market grows.

Nevertheless, there are still significant obstacles for Aurora. It remains to be seen how rapidly the Canadian market will rebound as constraints associated with the COVID-19 pandemic are unwinded. The cannabis stock could give up much of its recent gains with any bumps in the roadway.

Most significantly, Aurora could have to go to the well yet once again to raise additional money through another dilution-causing stock offering or effort to take on even more financial obligation. And what Aurora calls profitability isn’t real success.


Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.”> Keith Speights has no position in any of the stocks pointed out. The Motley Fool has no position in any of the stocks discussed. The Motley Fool has adisclosure policy“>

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