What Aurora Cannabis' Q2 Update Could Mean for Canopy Growth

On Monday, Aurora Cannabis (NYSE: ACB) became the first big Canadian marijuana grower to report results for the quarter ending Dec. 31, 2018. As you would probably expect, Aurora's sales soared with the quarter including 11 weeks of recreational marijuana sales in Canada.

There has been a lot of analysis over the last couple of days about what Aurora's fiscal second-quarter results meant for the company. But I think there's something else to consider: what Aurora's Q2 update might mean for others in the marijuana industry.

The biggest marijuana producer in the world by market cap, Canopy Growth (NYSE: CGC), reports its fiscal Q3 results (which also ended on Dec. 31, 2018) after the market closes on Thursday. Here's what Aurora Cannabis' Q2 update could mean for Canopy.

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1. Dazzling sales growth

Aurora's Q2 revenue skyrocketed by 363% compared to the prior-year period and jumped 83% over the previous quarter. I think the details of where that growth came from bode very well for Canopy Growth.

More than 41% of Aurora's Q2 revenue came from sales of recreational pot in Canada. That's revenue the company didn't have at all until last quarter. However, the total would have been even higher were it not for limited production capacity.

Aurora's revenue growth should be a pretty good indicator of what to expect in Canopy's Q3 results. If Canopy's sales growth is in the ballpark of what Aurora achieved, the big marijuana producer could be looking at Q3 revenue of well above 40 million in Canadian dollars, or more than US$30 million.

2. Huge market share

Aurora reported that it had a market share of around 20% in the Canadian recreational marijuana market in the period ending Dec. 31, 2018. That's a strong performance. The company had stated a few months ago that it estimated that it was capturing around 30% of sales in the important Ontario market in the early days of the launch of the recreational marijuana market in Canada.

It's likely that Canopy Growth will report an even larger market share than Aurora. The company secured bigger supply agreements with Canadian provinces than any of its rivals. Canopy could be on track to grab between 30% and 40% of the Canadian market.

3. Potentially weak international growth

One area of concern for Aurora Cannabis in the second quarter was its anemic international sales growth. The company's European cannabis sales grew only 1.8% over the previous quarter. This weakness could hint at a similar issue for Canopy Growth.

Canopy reported that sales of medical cannabis in Germany generated 10% of its total product revenue in its second quarter, which ended on Sept. 30, 2018. That's a higher percentage of total sales than Aurora made in international markets in its latest quarter. 

However, Canopy Growth CEO Bruce Linton talked about some issues in the German market in the company's Q2 conference call in November. Linton said that Canopy experienced "a bit of a distraction in our medical customers and a couple of hiccups of getting the normal run rate to Germany." Based on Aurora's results, Canopy's problems from Q2 might have extended into Q3 as well.

4. Dominance among its peers in the U.S.

There's one international front on which Canopy Growth should easily outperform its peers. And it's the biggest international market of all -- the U.S.