What's going on at Aurora Cannabis?

After a difficult start to the year for Aurora Cannabis Having already carried out a stock split and changed CEOs, Aurora has exceeded all expectations among observers of the Canadian recreational market by announcing its quarterly results yesterday.

No one was expecting a miracle, as Aurora had had the good sense to announce an asset write-down of nearly 2 billion $CA in the preceding months in order to spare investors.

The big surprise that no one had anticipated came when the company's financial statements were reviewed. And get this—you don't see that very often:

• Sales for this quarter totaled 72.11 million $CA (representing a year-over-year decline of 4.5% and a 5% decrease from the previous quarter). In contrast, during the same period, the Canadian adult market grew by 16%
• Aurora reported a net loss of 1.86 billion $CA, well above the net loss of 136.1 million $CA in the previous quarter. Overall, the company posted a negative EBITDA of 34.6 million $CA.
• A 36% increase in sales volume compared to the same period last year

And it was this last point that left analysts baffled: how can a company lose more money than before while selling far more products?

It all makes sense when you look at Aurora's strategy, as the company has been throwing itself wholeheartedly into what they call the value segment : to produce and sell weed whose main selling point is a ridiculously low price. This strategy proved very effective in the first few months, and Aurora was leading the pack in this category, with a value segment accounting for nearly 20% of all sales in Canada, with Aurora leading the category.

Just a quick note to let you know that thanks to this price war among producers, you can now buy 28 grams of weed for about 130$CA (110€, or just under 4€ per gram) in stores.

What Aurora hadn't anticipated was how much of a role this category would come to play in its strategy. Over the course of several months, without really meaning to, they became a hard-discount retailer of weed. Sales of value segment weed currently account for 62% of Aurora's revenue. The problem: it doesn't generate any profit.

In order to carve out a niche for itself and take market share from its competitors, Aurora is currently selling its cannabis at virtually cost price—a situation that is impossible to sustain even in the medium term. Its financial situation is dire, and there is no obvious solution to the current problem. I doubt their ability to shift back to higher-priced, higher-quality products because competition is fierce in Canada.

Aurora is slowly and steadily heading toward bankruptcy, the sale of its business to a competitor, or a merger, but does not seem capable of continuing this venture on its own.

A rare occurrence in the world of financial analysts, Bill Kirk of MKM Partners s’cracked a rather radical comment directed at Aurora: «Please Stop Growing So Much Weed.».