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Aurora Cannabis, Alberta's first medical marijuana operation, near Cremona, Alta., on Nov. 12, 2015.Jeff M<238><3,6.49p><4,2.28m><238,1>c<239>Intosh/The Globe and Mail

Shares of Aurora Cannabis Inc. rose nearly 15 per cent on Monday, continuing a rally that saw the company’s shares soar 137 per cent last week.

The Canadian marijuana grower, which reported quarterly earnings on Monday, appears to be benefiting from investor enthusiasm regarding the results of the U.S. election. Five more states passed ballot measures approving some form of cannabis use (Arizona, Montana, South Dakota and New Jersey approved recreational consumption, while Mississippi accepted medicinal use). President-elect Joe Biden has also expressed support for cannabis decriminalization, although not full federal legalization.

While Canadian companies listed on the Toronto Stock Exchange cannot participate in U.S. state-level recreational marijuana markets because of exchange listing rules, many have positioned themselves to enter the U.S. once federal laws change, and are already active in U.S. cannabidiol (CBD) markets. Federal reforms may still be a long way off, with the Republicans appearing to maintain control of the Senate.

Aurora’s share-price momentum last week culminated in a dramatic 55-per-cent jump on Friday, which some analysts said could have been fuelled by a short squeeze. (A sudden surge in share price can force short-sellers to buy into the rally to cover their short positions.)

Aurora’s quarterly earnings report beat analyst forecasts for revenue, but came in below expectations for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). Aurora’s adjusted EBITDA loss for the three months to Sept. 30 was $10.5-million, or $57.8-million if you include one-time restructuring payments related to cancelled contracts (notably its deal with the Ultimate Fighting Championship), and employee terminations.

“The better-than-expected revenue number is likely more important than the miss on EBITDA,” Piper Sandler analyst Michael Lavery wrote in a Monday morning note. “Though the results do not seem to justify the around 100-per-cent gain in the shares in the past week, which appears to be driven by retail investor excitement around the U.S. election.”

RBC analyst Douglas Miehm noted that the results were “fundamentally fairly neutral,” but said the market may respond well given “subdued expectations after [Aurora] released weaker than expected quarterly guidance in late September.”

Aurora’s shares have traded down dramatically over the past year and a half, as the company has pushed back targets for positive earnings, shuttered facilities and continued to burn cash and dilute shareholders with at-the-market share issuance programs. Aurora stock is more than 90 per cent below its peak in October, 2018, shortly before recreational cannabis was legalized in Canada.

The company, once Canada’s second most valuable pot producer, trades at a lower enterprise-value-to-sales multiple than its peers.

“We believe [Aurora’s] relative valuation reflects an overhang from its recent revenue/market share decline, and potential for ongoing equity financings; however, we see potential for further trading upside, particularly given its historically high short position,” Mr. Miehm wrote in a note on Monday morning.

Other cannabis stocks have been buoyed by the U.S. election results as well. The Solactive North American Cannabis Index, which tracks both Canadian and U.S. companies, is up more than 25 per cent over the past six trading days.

Large cap Canadian producers have been a popular way for investors to trade on election excitement; they are listed on major exchanges in Canada and the U.S. and their stock tends to be highly liquid.

It’s unlikely, however, that Canadian licensed producers (LPs) will benefit much from the election results in the short term, Eight Capital analyst Graeme Kreindler warned in a note on Monday.

A Republican-controlled Senate is unlikely to approve two pieces of key legislation making their way through Congress that would allow TSX-listed companies to operate in the United States without violating federal law.

That puts Canadian LPs at a disadvantage to U.S. multistate operators (MSOs), which already operate in states that have legalized marijuana at a local level. The MSOs tend to trade on junior exchanges, such as the Canadian Securities Exchange, that have less restrictive listing rules.

“If broad reform bills ... were to stall out in the legislative process, we believe that regulatory status quo would maintain the current oligopolistic-like competitive dynamics for MSOs,” Mr. Kreindler wrote.

“Canadian LPs, on the other hand, are reliant on broad scale regulatory reform to enable a market entrance that would preserve their exchange listings and other key relationships.”

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