When Aurora Cannabis (NYSE:ACB) reported Q4 revenue growth of 52%, the stock sold off. Its downtrend is gaining momentum as trading volume increases and bears hold their 11.9% short float bet against the company. And even though Canopy Growth (NYSE:CGC) and Tilray (NASDAQ: TLRY) rebounded somewhat, the bounce will prove short-lived.
Aurora’s revenue growth suggests strong demand will continue but net selling per gram, down 17%, is troubling. Medical revenue growth of 10% and international growth of 12% are positive developments but slower than investors expected.
Gross margin also fell 16%. Inventory surged 252% to CAD$144 million. And ASP (net) of dried cannabis and cannabis extracts, down -30% and -23%, respectively, is of deep concern.
The market for cannabis clearly needs several more quarters to develop its growth potential. Companies are still spending heavily on supply capacity. This will hurt prices even as demand levels are not met.
Investors with a multi-year time frame should choose stocks carefully. ACB is not yet profitable but is getting there. Canopy Growth aims to generate annualized revenue of $1 billion. When both firms reach their targets and report profits, the stock will perform better. In the near-term, the downside outweighs the reward for speculative traders.
