It’s time for Aurora Cannabis Inc. to grow up.
After years of spending capital to become one of the world’s biggest cannabis companies, the Edmonton-based pot giant’s interim Chief Executive Officer is using its latest quarterly report to hit the reset button.
Out is the company’s founder and former CEO Terry Booth, along with 500 other staff amid a company-wide effort to cut spending. Aurora also wrote down $1 billion in assets in its second-quarter, while reporting on Thursday an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) loss that missed analyst expectations due to a sharp decline in cannabis production.
“It really is time to almost grow up and mature as an organization and start delivering … profitability,” interim Aurora Chief Executive Michael Singer told BNN Bloomberg in a phone interview.
“Once you do that, you’re no longer dependent on the market to fund your operations.”
Aurora isn’t alone in how its business has suffered alongside its cannabis sector peers in a recreational market stymied by supply problems, a stunted rollout of legal retail outlets and a still-thriving illicit market. However, the company says it also overestimated the demand for legal cannabis domestically and in the medical market abroad.
“I would never say we made mistakes. The decisions we made in the past made sense at that time,” Singer said. “But the market has changed. You have to take a step back and think pragmatically today and think ‘What do we need to do today to adapt for a changing environment?’”
Bruce Campbell compares Hexo, Aurora and Canopy
Bruce Campbell, president and portfolio manager at StoneCastle Investment Management, compares Hexo, Aurora and Canopy.
Singer said the company is now “recalibrating” its expectations of the Canadian cannabis market, launching a new value product dubbed the “Daily Special” aimed at combating the illicit market, while still finding creative ways to drive down costs, such as reducing its directors and officers insurance.
He added there are no plans to further cut jobs materially, and emphasizes any capital the company intends to spend needs to be “rationalized” and immediately show value. “The only thing that we have in front of us is our ability to control costs,” he said.
But Singer isn’t ruling out any more major moves – they just need to make sense. He noted Aurora will continue to keep a focus on its entry into the U.S. cannabis market, highlighted by the appointment of Kraft Foods and Mondelēz International Inc. executive Lance Friedmann.
“It is a market that we cannot ignore,” Singer said. “If we look at acquiring something in the U.S., it’s something that has to be federally legal, complement our business, has to be instantly accretive, has to be cash-flow positive and has to add to my balance sheet, not take away from it.”
Investors may be warming to the company’s latest moves. Aurora’s stock rose slightly higher Thursday after the company reported its latest quarterly results, although it has plunged more than 87 per cent since hitting a high of $15.95 in Oct. 2018. The Horizons Marijuana Life Sciences Index ETF has declined by about 66 per cent during that same period.
The positive stock move comes despite a decline in net revenue in the quarter at $56.6 million, down 26 per cent from the prior three-month period, while reporting an adjusted EBITDA loss of $80.2 million, up from $39.7 million in the prior quarter. The company also reported a 26 per cent quarter-over-quarter decline in cannabis production attributed to production changes. Analysts expected Aurora to report $61.7 million in revenue and an EBITDA loss of $62.5 million in the three months ending Dec. 31, according to Bloomberg data.
But analysts remain skeptical Aurora can successfully turn the ship around amid a perilous cash position and reduced access to the company’s credit facility, not to mention a fickle consumer market that is still awaiting the full rollout of so-called Cannabis 2.0 products.
“This (quarter) was a function of the company beginning in their quest to underpromise and overdeliver, something which has been the reverse to date in most of the sector, and will be key going forward if the company are to rebuild trust with investors and the wider market,” said Jefferies LLC analyst Owen Bennett, in a report to clients on Thursday.
Singer appears confident the company will be able to stick around long enough for the cannabis market to rebound back to a level that could reach those original, lofty expectations.
“If we conclude that there’s certain areas that no longer warrant that investment, we’re going to strip those out as well,” he said.
“We’re going to continue to provide that level of discipline and fiscal responsibility that hasn’t existed before to ensure we have the right size of the business to meet the current market opportunity with an eye on the future.”
Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new — and controversial — Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.
Let’s block ads! (Why?)
Source link
Related
