RE:This Report Doesn't Send a Positive Signal for Small LPsKelownaClown wrote:
Aurora Cannabis: More Reasons To Be Nervous Summary Health Canada data points to stalling legal cannabis sales. Aurora Cannabis is set to start flooding the market with cannabis inventory raising supply to 25,000 kg in the June quarter and to 37,500 kg shortly after. The market is already positioned with dried flower inventory equal to 2 years worth of sales. The desire of Aurora Cannabis (ACB) to build production capacity to supply the world was already troublesome to my investment thesis in the stock. The latest news that legal demand in Canada isn't growing is a big reason for investors to become very nervous and why the stock has dipped below crucial support at $8. Only back at the start of April, Aurora Cannabis announced the decision to increase production by ~80,000 kg to a total of 625,000 kg. The move remains troubling because demand in Canada isn't growing with the legalization of adult-use cannabis and the company is effectively blocked out of the U.S. market. After the initial boost in sales last October, Canadians haven't rushed to the legal weed due to a supposed shortage of legal supplies and retail locations. Or at least the market leaders suggested so, but the sales and inventory data from Health Canada continues to tell a far different story. During Q1, finished inventory of dried cannabis surged over 60% to 30,802 kg while sales in March was basically flat with December at 7,600 kg. Even more troublesome, unfinished inventory surged to 143,773 kg. Combined inventory of 174,575 kg is enough supply for nearly 23 months or almost two years at current monthly sales levels. Supply Flood What is clear is that the supply flood is already showing up in the monthly data from Canada, yet companies like Aurora Cannabis haven't even seen a big ramp in production through the March data. The company expects to supply enough cannabis in Q2 alone at 25,000 kg to supply the whole dry cannabis market for the quarter. The goal is to quickly reach 37,500 kg of cannabis production per quarter before another massive ramp in 2020 to over 150,000 kg per quarter. Even in March, Aurora Cannabis reached over 9,000 kg of dried flower equivalent or enough for the whole country of Canada in the month. Takeaway The key investor takeaway is that Aurora Cannabis still hasn't made the case of where all of this supply is going to end up when so many competitors are equally adding supply. The legal demand in Canada hasn't shown up as expected to support any thesis of expanding supply at such a rapid clip by the end of 2020. The next step for June is to watch the pricing as inventory starts finally reaching the market in a meaningful way. The Aurora Cannabis bulls better hope that legal cannabis sales jump or prices are likely to start crashing after a weak May sending the stock even lower.
Think its the other way around.....Aurora will suffer by over producing and not moving all of it....burning through money like they have been for the last little while.....looks great for companies that are breaking even or jus starting to become profitable.