Aurora Cannabis Inc. (ACB) Earnings Call Transcript & Summary

Thank you. All participants will be in a listen-only mode, and a question and answer session will follow the formal presentation. This conference call is being recorded today, Wednesday, August 5th, 2026. I would now like to turn the conference over to your host, Kevin Nyland, Director of Strategic Finance and Investor Relations. Please go ahead, sir.

Hello and thank you for joining us. With me are Miguel Martin, Executive Chairman and CEO, and Simona King, CFO. Earlier this morning, we filed our fiscal first quarter, 2027, financials for the period ending June 30, 2026, and issued a news release containing our quarterly results. Financial statements, MD&A and news releases are available on our IR website and can also access via CDAR Plus and ACAR. In addition, you will find a supplemental information deck on our IR website. Please note that we present our financials in accordance with IFRS and in Canadian dollars. Throughout our discussions we will be referring to both GAAP and non-GAAP adjusted results and encourage you to review the reconciliation contained within the press results from their GAAP, the corresponding non-GAAP measures. Our discussion today serves as a reminder that certain matters could constitute forward-looking statements that are subject to risks and uncertainties relating to our future financial or business performance. Actual results could differ in charity from those anticipated in those 4-0 statements. Risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. Documents may similarly be accessed via CDAR Plus and ADKAR. Following our prepared remarks, we'll conduct a question and answer session with our covering elements. With that, I'll turn the call over to Miguel. Please go ahead.

Thanks, Kevin. Aurora has become synonymous with medical cannabis in nationally legal markets because we spent years building the infrastructure, scientific capability, and regulatory expertise required to deliver reliable, scalable, and consistently high-quality products to patients. A dedicated focus on medical cannabis enables us to maximize opportunities in the industry's most attractive, durable, and profitable segment, and should help us maintain and expand our leadership over time. We are already a leading exporter and hold top-tier market share positions in Canada, Germany, Poland, and Australia. We are also well positioned to export to other countries as the regulatory environment continues to open. We prioritize expanding our manufacturing capacity to support growth in the estimated $9 billion global medical cannabis market. There are only a handful of companies like Aurora that have the capabilities and certified pharmaceutical grade facilities required to reliably produce and sell directly into European and Australian medical channels. Our integrated approach to manufacturing and distribution reflects disciplined operational and financial management that drives lower production costs through strong yields, higher potency, and continued operational efficiency. Our cost base is structured to support top-line growth, and our continued investment in international expansion helps offset the near-term headwind in revenue and gross profit contributions to our business, stemming from the reduced VAC reimbursement rate in Canadian Medical. We continue to prioritize and maintain a strong balance sheet with ample cash and no debt. This gives us greater flexibility to navigate regulatory and competitive developments across Canada, Europe, and other key international markets, and lets us deploy capital thoughtfully to stay ahead of our competition. Here are some of the key highlights from this quarter. First, international medical cannabis net revenue rose 17% to $43 million, driven by strong performance in Germany. Notably, about 64% of our total net revenue was generated outside of Canada, up from 50% last year. Second, our acquisition of Safari Flower Company and the recently announced certification of its EU GMP facility adds critical manufacturing capacity to serve the growing, profitable international medical cannabis markets. Third, adjusted gross margin was 58% at the high end of our expected annual range as we from strong contributions from international markets. And finally, we ended the quarter with nearly $150 million in cash, cash equivalents, and short-term investments with no debt. Our operational network is clearly a core differentiator for Aurora, further supported by the recently completed acquisition of Safari Flower Company and the investments we have made in genetics and plant science. As international medical cannabis markets continue to evolve, EU GMP certification remains a critical enabler for global service. strategy and supports long-term profitable growth. Our investment in plant science and genetics has helped deliver meaningful reductions in the cost per gram to manufacture. Genetic differences alone can drive a yield improvement of up to 40% on the same cost base, a critical advantage in a capital-intensive business. Consistency is equally important, particularly in highly regulated medical markets, where product variability can disqualify items from market access altogether. Safari is an established EU GMP certified cultivator and manufacturer operating a 59,000 square foot purpose-built indoor facility in Ontario that strengthens our position as one of the largest Canadian exporters of medical cannabis. The acquisition gives us incremental EU GMP capacity that aligns with our existing low manufacturing network, strengthening our ability to meet the growing international demand for high-quality EU GMP products. This transaction was accretive to our adjusted EBITDA results during the first quarter, and we intend to apply our plant science and operational expertise to drive incremental benefits through increased yields, lower manufacturing costs, and additional supply of EU GMP flour to maximize the high-margin opportunities in Europe and other key international markets. Now let's discuss our key medical canvas markets individually. Germany is our largest and fastest growing international market. It's also one of the most rigorous markets with strict GMP standards required for access. We view these attributes as a competitive advantage rather than a barrier and one that has helped us build a stellar reputation with wholesalers, distributors, and pharmacists. The market is structured around flower and oil, and unlike in other countries, Germany maintains meaningful separation between premium, core, and value-tier pricing. We operate primarily in the premium and core segments, which represent the majority of our volume, with all three segments continuing to grow. As new competitors enter Germany and pricing pressure increases, we've maintained our leading market share. by adjusting pricing where appropriate and broadening our product line to include more value options. We also expect GMP standards to become increasingly stringent, a trend we believe favors experienced and established operators like Aurora. Our EU GMP certified facilities and integrated supply chain allow us to ship directly to Germany and continue supporting growing patient demand in the years ahead. Our leadership showed through this quarter with two of our proprietary cultivars continuing to rank in the top five by sales. Clear evidence of our brand equity that we've developed since first entering Germany in 2018. We're one of only three active in-country producers of medical cannabis holding a production and R&D license under German cannabis law, giving us a strong foundation to directly serve the growing medical markets across Europe. To capture incremental share in this growing market and augment our EU GMP production, we are in the final phase of our expansion plans for our learning facility. These investments should increase product quality through the same industry-leading genetics and operational playbook that has helped deliver incremental margin gains. The project is nearing completion and combined with the rollout of our proprietary cultivars is expected to double the site's annual flower output. The The German market has built a very mature and integrated medical cannabis framework. They have a well-developed physician and pharmacy-led network that supports patient access, which is further supported by proper manufacturing and distribution capacity, GMP-level standards, and strong regulatory oversight. All those points to a system that's solid, well thought out and highly integrated. We continue to monitor the regulatory and legislative environment in Germany, and while there's been lots of discussion regarding potential changes, we believe that we have the skills and capabilities to navigate any potential revision successfully and come out stronger on the other side. Similar to how we successfully navigated the changes in Poland last year. Speaking of Poland, we hold the number one market share position, supported by strong commercial execution. We are encouraged by recent increases in annual import limits and the strong, loyal patient base, which strengthens our growth outlook for this key, highly regulated market. Success in Germany and Poland positions us well for other areas. emerging regulated markets, such as France, Ukraine, Switzerland, Spain, and Austria, as our capabilities are portable. We will continue to focus on cultivation and wholesale, where we believe the greatest margin opportunity exists, rather than downstream channels like retail or telehealth. These sit outside our core competencies of weaving ever-increasing regulatory standards into our operations. Our well-established leadership in Australia is allowing us to shift our sales mix towards core and premium products, reflecting growing demand from both prescribing physicians and patients for higher-tier options. Australia also offers one of the broadest product format ranges outside of North America, giving us the opportunity to fully leverage our diverse product portfolio beyond flour and oils. We are also encouraged by the growth we are seeing in New Zealand, another highly regulated market where patients are responding favorably to our growing product assortment. Finally, let's turn to Canada. The first quarter marked the onset of revisions to the federal reimbursement program, which took effect April 1st. As expected, this external regulatory shift impacted both our top line and adjusted gross profit. However, we are encouraged by our continued strong margins in our global medical cannabis business that supported the of consolidated adjusted gross margins of 58%, which are at the higher end of our targeted range. depleting margins along with our historical ability to grow share in this business should therefore remain intact. Against this backdrop, we expect to expand share with new patients continue to enter the market. The revenue and adjusted EBITDA impact reflected in our first quarter performance and reaffirmed annual guidance is primarily a function of industry-wide changes and not a reflection of underlying demand or our competitive position in the long term. In our view, we have the capability high-quality products, financial resources, and resilience to successfully navigate this headwind and deliver profitable growth while continuing to invest in growing international opportunities. Finally, let me address the changing U.S. regulatory landscape. We're watching developments in the U.S. closely, particularly as recent uplisting activity and potential rescheduling create new possibilities. see three areas of opportunity for us. Expanded research collaboration following federal rescheduling, potential partnerships leveraging our GMP and medical grade manufacturing standards, and longer-term import-export possibilities between the U.S. and the international medical markets we already serve. That said, we are encouraged by this renewed momentum and look forward to further regulatory clarity from the U.S. administration in the coming months. Let me now turn the call over to Simona.

Thank you, Miguel. Our quarterly performance reflects the strategic decisions we have made to reallocate our resources to focus on global medical cannabis opportunities. While some of the year-over-year comparatives may appear less favorable, the results themselves are in line with our expectations, and we are purposely investing in our international business through strategic sales initiatives and EU GMP capacity expansion to support growth in our most profitable markets. Let's now review our fiscal first quarter 2027 compared to the prior year and I will then reaffirm our fiscal year 2027 outlook. Net revenue was 67.6 million, which is inclusive of a 17% increase in international medical cannabis. growth was offset by the expected changes in Canadian medical net revenue and the planned exit from our lower margin Canadian consumer cannabis business. Consolidated adjusted gross margin held strong at 58%, coming in at the high end of our annual guidance range. The change versus the prior year was primarily due to the expected changes in Canadian medical pricing, offset by strong international performance. Consolidated adjusted SG&A was reduced from $36.1 million in the prior year to $35.1 million this quarter. This $1 million reduction was driven primarily by lower general and admin spending, offset by slightly higher selling costs. Adjusted EBITDA was $3.4 million compared to $10.8 million in the prior year, while adjusted net income was $3.8 million compared to $6.6 million last year. The year-over-year changes primarily reflect lower adjusted gross profit before fair value adjustments, partially offset by improved SG&A performance and an increase in other income. Our balance sheet remains one of the strongest in the global cannabis industry. We held close to $150 million in cash, cash equivalents, and short-term investments with no debt. We have ample liquidity and can be opportunistic with respect to investing in ourselves as needed, while also pursuing additional acquisitions. Pre-cash flow was an outflow of $5.8 million compared to an inflow of $6.8 million from the prior year. due to a reduction in gross profit before fair value adjustments of $9.7 million. Let me now reaffirm our outlook for fiscal 2027 ending March 31, 2027. It reflects the important steps that we've taken to strengthen the business and drive growth in the attractive global medical cannabis market. Recall that we viewed this as a transitionary year and we remain optimistic in our long-term trajectory. fiscal 2027 is being shaped by changes in Canadian medical that can be partially offset by international growth, as we demonstrated in Q1. purposely investing in our international business to support growth in our most profitable markets. This includes our new wholly owned subsidiary, Safari Flower Company, a trusted cultivator and manufacturer of high quality medical cannabis, which provides incremental capacity to supply international markets such as Germany, Poland, and the UK. For the fiscal second quarter, we expect revenue in adjusted EBITDA to be substantially higher than in the fiscal first quarter. Thank you for your time. I'll now turn the call back to Miguel.

Thanks, Simona. We've established one of the most attractive medical cannabis growth businesses in the world. by a sizable footprint across all major countries and regions. To accelerate our global momentum, we are deploying targeted investments to rapidly expand GMP capacity, push a steady cadence of new product launches, seize additional market share, and reinforce our leadership position. These actions are engineered to deliver a sustained double-digit revenue growth, maintain superior margins, and drive higher EBITDA contributions over the coming years.

Thank you all for your time today and for your continued confidence in Aurora. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. ask that you limit yourself to one question so that others may have the opportunity to do so as well. If you would like to ask a follow-up question please rejoin the queue. One moment please while we poll for questions. Our first question comes from Bill Kirk with Roth Capital Partners. Please proceed with your question.

Good morning, everybody. I was hoping Miguel and Simona if you could give us some more details or specifics on the expectation for sequential revenue growth and the EBITDA improvement that you expect off 1Q and in particular are there any markets where you're confident that that growth is going to be driven from or any cost savings opportunities? that you have on the horizon that gives you that sequential improvement confidence.

Great, and good morning, Bill. Let me start and I'll let Simona pick up the backside of it. I think overall it's going to be similar to what you've seen. So the same markets where we see opportunities and we see growth will continue to be there. Obviously, there's a bit of a reset as it pertains to VAC, but we expect to grow share off of that. As you move offshore, you know, We see opportunities in Poland and Germany and Australia and New Zealand. Clearly, Germany being the biggest is the most sort of obvious place for it. And as we said in our prepared remarks, we continue to find significant opportunities there because of the scarcity of high-quality GMP flour, which is something that really we excel at. And so I think it's more of the same, so there won't be any real big surprises. And on the cost side, we continue to look for efficiencies. The biggest do come from our genetic work and the production efficiencies we get out of our facilities. So as we said and we've said in the past, some of those genetics can yield up to 40% increase. and also have improvements in quality and potency and Terp scores and things like that that allow you to garner some higher economics. But, Simone, anything you want to add to that? No.

I think you covered it, Miguel, and maybe to reiterate that we're very encouraged by the strong growth that we're seeing in Germany. And we're happy to, especially in Q1, deliver on the high end of our guidance range with our adjusted growth margins being at 58%. So, again, reflecting on what Miguel said that we see continued efficiencies in our manufacturing network.

Perfect. And as a follow-up, on that manufacturing network, you talked a lot about the importance of EU GMP and your medical standards and quality. What do you think about the U.S. growers who are confident they can export into international markets? And would you think of them as potential extra competition? in those markets, or would they be potential partners that you could help access your international supply chain?.

You know, listen, I think it's a little early. Obviously the regulatory construct that the MSOs and the SSOs operate in is totally different than what we see, say, in Germany or Poland or New Zealand. And that's not to take anything away from them, because I think there's some very strong operators there. What I do know is that we've been in Germany since 2018, and it's difficult. And it's not just the regs that exist today. As we've said, those standards continue to tighten. And so I think whether you come from the U.S. or you come from Canada, it's a challenge in order to get product consistently in there. The other thing, you know, for us, which is a big advantage, is we grow almost everything that we sell. So we control that network all the way through as opposed to, say, third-party purchases or other aspects on it. And in terms of partnership, as we said in our comments, we absolutely believe that there will be opportunities to partner. Our almost decade-plus of large-scale GMP manufacturing in a pharmaceutical setup for these countries lines up very well for what we're starting to see from the rescheduling regulations coming out of the U.S. So we're hopeful, just like we partner with folks in Canada. and internationally, that that would also extend to the U.S. Thank you. That's perfect. I'll jump back in the queue. Thank you, Bill.

Our next question comes from Fabrico Gomez with ATB Capital Markets. Please proceed with your question.

Hi, good morning. Thanks for the question here. I guess I want to talk about your Germany because, you know, Miguel, you mentioned that, I guess, your senior expect to see continued pricing pressure there. Can you talk about the magnitude of that price pressure that you're seeing and you know our prices coming down? and I mean, steadily every quarter, and that being lumpy and varied according to the availability of supply. And then the second point in Germany is just, you know, potential revisions there in terms of the regulatory framework. If you could just talk about how you think the regulatory environment in Germany is going to evolve and how Aurora is positioned to,.

to potentially benefit from that. Thank you. Of course, and good morning, Fred. I think, so first let me talk about pricing in Germany. So, as we mentioned in our prepare to march, there really are three distinct, sort of quality tiers in Germany that are very articulated, and we like that in a market. So you've got premium, core, and value. All of them are required to be GMP, so they hold a higher standard than maybe a non-GMP market. We see most of the pricing pressure in the value segment, as to be expected. And actually, when you look at core and premium, because of the increasingly challenge that comes with these GMP standards getting more stringent, we see that pricing's been held up quite well there. So I think while you always are sort of seeing something in the value segment, on the higher ends you don't, and we also see, since it's such large self-payer market that you don't see some of the pressure on the reimburse side you know as maybe the the reimbursement rates would change like you see in Canada the VAC system. So I think we're pretty confident in that piece of it. And overall, when you think about some of the noise that we've heard from potential legislation, we'll know a lot more in the coming months. But usually when these things happen, it benefits those companies that have the sort of wherewithal and the persistence to stick through it. Obviously, the most obvious example. as Poland when they made some changes in the telehealth platform there which you're well aware of we saw a short-term dip And then for those companies like Aurora that were able to pivot and handle the regulatory changes, there was actually growth opportunities. And so if there were changes to the telehealth provisions in Germany, which seem a little less likely on some of the more severe ones, but we'll see, I think companies like Aurora actually stand to gain because it makes it that much more difficult. difficult for those that haven't dealt with it or are not prepared to manage it.

Thank you, appreciate that. You're very welcome, Fred. Our next question comes from Ryan Neal with TD Cohen. Please proceed with your question.

Hey everyone, this is Ryan on for Derek and thanks for taking my questions. Just to start in the domestic market, can you isolate the impact of the lower reimbursement rates on revenue, gross profit and EBITDA and have you seen any further changes in patient behaviour or pricing since the initial adjustment?.