Aurora's stock price falls 16% after missing sales guidance, suffering from supply issues
Aurora Cannabis is one of the biggest companies in cannabis — it’s a big Canadian conglomerate of a few different companies and brands, and it’s assembled quite a distribution system up in Canada, planning to kick out 625,000 kilos a year by the middle of 2020. But last week, when the company reported its earnings for the fourth quarter of 2019, Aurora missed its own sales guidance, reporting CA$98.9 million in sales just a few weeks after it said it planned to have CA$100 million to $107 million total. Even though the difference is just a few million dollars (and nearly $100 million is still not that small), Wall Street got spooked, and since the announcement, the stock price has dropped 16%, to its lowest point in over a year.
So what’s the problem? The truth is that Aurora (along with other companies in the space) is spinning up as fast as it possibly can, but it turns out that might not be fast enough for investors. The company said in its financial statements that “Aurora has addressed previously identified production bottlenecks,” but that “the Canadian consumer channel continues to experience challenges at the retail level in key markets and resolution of this issue is beyond the Company’s control.” Translated from corporate speak, that means that there’s just not enough legal supply available to sell — Canada is moving as fast as it can to license growers and distributors, and companies like Aurora are working as hard as they can to firm up supply chains, not only for cannabis, but also for the packaging and testing needed to sell it legally, and so far, as Aurora says, the solution to these problems is “beyond the Company’s control.”
Cannabis is now legal in Canada, and edibles are going to be legal on store shelves there in December, so the drug isn’t going away there any time soon. But Aurora needs to keep growing to keep investors happy, and it and other companies are running into real issues trying to develop supply lines and products fast enough to keep up with the current market. Hopefully, the company can find solutions to these problems (and Canada can continue to streamline licensing and testing, and still keep quality high). If Aurora can’t keep supply strong and profits high, investors will send their money elsewhere.