Aurora Cannabis (NYSE: ACB) en Canopy Growth (NYSE: CGC) are two of the bigger names in the cannabis sector. They both face similar challenges – namely how to keep growing in the midst of increasing competition while getting closer to breakeven. Within the past 14 months, both companies fired their CEOs as well.
While they have a lot in common, today I will look at what separates these two cannabis producers – how their finances stack up against each other, what company has the bright future ahead and their respective ratings. Most importantly, I will assess which of these two stocks is the better buy now.
A look at their recent results
In the first quarter results for fiscal 2021, released August 10, Canopy Growth reported a net loss of 128.3 million Canadian dollars. It is an improvement of the CA $ 1.3 one billion loss it incurred in the fourth quarter after registering securities and restructuring costs totaling CA $ 743 million, and it is better than the CA $ 194.1 million loss the company took in Ontario a year ago. It is fair to say that Canopy Growth shows improvement at its bottom line.
Aurora’s most recent results, May 14, showed a net loss of CA $ 137.4 million for the third quarter. That was an improvement from the CA $ 160.2 million loss it took in the same period last year and from its second quarter loss of CA $ 1.3 billion, which also included valuable losses totaling more than CA $ 1 billion. In general, both companies stay away from breakeven, but they are taking steps to improve their bottom lines.
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In terms of revenue, however, Canopy Growth has a clear advantage. In just one of the past four quarters, the company has raised revenues north of CA $ 100 million. Aurora, meanwhile, is still reaching that threshold, and in three of its most recent reporting periods, sales remained below CA $ 76 million. And while third-quarter sales numbers grew 34% from the previous quarter, this was also offset by the company’s highly disappointing second-quarter results, which reported just over $ 56 million in revenue, down 26% of the first quarter. Much of the CA $ 19.2 million decline in Q2 sales was due to price adjustments, revenue provisions, and returns totaling CA $ 10.6 million.
Although both companies have a long way to go before they can achieve profitability, Canopy Growth gets the lead in evaluating finances given its stronger and consistent sales numbers.
Which company is better able?
Canopy Growth is betting on liquor and “Cannabis 2.0” sales to boost its topline this year, having shipped more than 1.2 million cans of marijuana drinks to Canada to date. Management at Aurora, however, is not so convinced that liquor will be profitable, and instead seems to be more focused on cutting costs.
In a June business update, Aurora noted its ongoing work to reduce its expenses, focusing on a positively adjusted income before income, taxes, depreciation, and amortization (EBITDA) number through the first quarter of fiscal 2021. Canopy Growth is also working on expenses cut, but has not provided a specific timeline for when investors can expect to see its figures in the black.
However, profitability could be much more important for Aurora given the weaker cash position. In February, investment bank Ello Capital rumored that the pot maker could be months away from resolving liquidity. As of the end of March, Aurora reported cash and cash equivalents totaling CA $ 230.2 million. Canopy Growth, meanwhile, had CA $ 975.9 million in cash and cash equivalents at the end of June.
In terms of stability, Canopy Growth seems to be in a much safer and better position going forward.
What her appreciation looks like today
The one area where Aurora is the more appealing buy is price. The stock trades at a much lower multiple than its rival:
CGC PS Ratio data by YCharts
Investors are currently paying a large premium for Canopy Growth over Aurora, and it may not be guaranteed, given that the former company did not exactly blow the doors with skyrocketing sales numbers. And since this is a transition year for Canopy Growth, it may be some time before the company returns to focus on growth initiatives.
One major reason there is such a big difference in their ratings is that investors are much more bearish on Aurora:
HMMJ data by YCharts
What supplies should you buy?
Aurora is a cheaper purchase than Canopy Growth, but it is also riskier. There are concerns about their cash position, and without a large investor in the wings as well Constellation Brands (which owns 38.6% of Canopy Growth and can help the cannabis business in difficult times), Aurora is all on its own.
The potential rewards of investing in Aurora could be much greater, given the steep decline the stock has seen, but it may not be worth the risk. Given the fewer question marks about its stability, investors should go with Canopy Growth because they have more market share and more of a sure thing is ahead.
