To kick off the trend analysis of this set of graphs we have Aurora first up for Gross Margin Versus SGA.

I did have to decide about how I wanted to handle their $10.6 million G&A Q1-Q3 F2019 adjustments being dumped into the Q4 F2019 expense category in their MDA.  I had two choices:

1. Leave the Q4 as was presented, which understates Q4 and overstates Q1-Q3, or
2. Change Q4 to what they indicated in narrative of MDA and leave Q1-3 OVERSTATED.

Because I don’t have the Q1-3 changes and I KNOW Q4 was overstated by $10.6 million I decided to go with #2, as it is the most recent earnings AND they told me the adjustment. 

Gross Margin vs SGA: Peer Analysis

ACB boasts the highest Gross Margin in the industry in absolute terms, a function of the highest sales and the highest GM% of its peers. They also boast the second highest SGA at $24 million less than CGC, which they pull off despite more sales than CGC.

This combination leaves them with a Delta of $28 million.

Gross Margin vs SGA: Trend

Prior to this past Q, Q1-3 evidenced VERY similar aggregate SGA. 

In some Q’s Selling was higher, notably in last Q before Adult rec (Q0-3 above) when it was $29 million.  Then it reduced to as low as $16 million in March 31/19 Q (Q0-1).  But in Q4 (Q0 above) it almost doubled to $31 million.  [Note: Aurora knew they wouldn’t be +EBITDA as soon as they got off the checkbook on Selling expenses in Q4.]

G&A has been steadily building each Q: $36M, $44M, $51M and $53M this past Q. Again, I added $10.6 million to their reported figure to get Q4.  This would have ben spread over Q1-3 as reductions.

All in SGA hit a peak in the recent Q at $83 million. 

This leaves a Delta of $28 million. The Delta has been decreasing over the period in review and did reduce $3 million QoQ.

In order to erode that Delta they need a combination of the below:

• More sales with same GM%
• A higher GM%
• Less SGA

At the current GM% of 56% they would need incremental sales of $50 million to erase this deficit.

They cannot get to +EBITDA without first eliminating this deficit. With the $28 million deficit, IMO they look to be 2-3 Q’s away from +EBITDA especially of wholesale sales are not repeatable.

GoBlue

The author has no position in ACB and does not intend to take one in the next five days.