RE:RE:DILUTED THEMSELVES TO NO.1 The industry leader
When it comes to marijuana production, scale matters. The larger producers can spread their costs over a bigger revenue base, thereby generating higher profit margins. Larger growers can also more easily sign lucrative long-term supply deals with wholesalers and governments. This can lock in sizable revenue streams and provide these producers with more cash to expand their operations.
Out of all the publicly traded marijuana producers, Aurora Cannabis (NYSE:ACB) has the most peak production potential by far. Boosted by its acquisitions of MedReleaf and CanniMed, Aurora is on track to produce more than 625,000 kilograms of cannabis annually by 2020. Moreover, my colleague Sean Williams believes Aurora could potentially produce as much as 1 million kilograms should it choose to develop more of its land assets in the coming years.
Aurora's industry-leading scale should continue to provide it with powerful competitive advantages over its smaller rivals. It's also helping the Canadian cannabis producer increase its revenue at a torrid pace. Aurora's gross revenue soared 367% year over year to 75.2 million Canadian dollars in its most recent quarter, fueled by a 1,193% increase in cannabis kilograms produced (15,590) and a 577% increase in kilograms sold (9,160).
Aurora's growth investments are, however, weighing on its profitability. The company produced a CA$158 million net loss in its fiscal third quarter, up from a loss of CA$19 million in the third quarter of 2018. Yet management expects higher production volumes and lower per-unit costs to help Aurora generate positive earnings before interest, taxes, depreciation, and amortization (EBITDA) beginning in the fourth quarter.
Improving economies of scale should allow Aurora to reach sustained profitability in the years ahead. Investors may want to buy ahead of that -- before the market realizes just how profitable Aurora Cannabis can ultimately become.