Aurora Cannabis Inc. (TSX: ACB) shares rose five per cent after the company said it has “taken decisive action” to rein in costs while reporting declining revenue and a massive loss in its second quarter earnings.
The Edmonton-based weed giant announced Thursday its net revenue was $56 million for the three months ended Dec. 31. That’s down 27 per cent from the prior quarter ended Sept. 30 when it reported over $75 million.
Interim CEO Michael Singer said on a call with analysts the past year has been challenging for the cannabis industry at large due to retail constraints, underwhelming consumer demand, and issues with the provinces controlling distribution.
“It is important to remind ourselves that the Canadian consumer market is just over a year old and will take time to develop,” he said. “But we remain extremely bullish on the long-term potential of the Canadian medical and consumer markets as well as established international medical markets.”
Despite the optimism, the company has been plagued with negative headlines for some time. A week ago Aurora announced it will have to swallow $1 billion in writedowns and lay off 500 employees to cut back on costs. The company also said its CEO Terry Booth would step down to retire.
Aurora reported a $1.3 billion second quarter net loss, thanks to the same goodwill and asset impairment charges that were disclosed last week. The company has been carrying over $3 billion in goodwill on its balance sheet a year after it acquired mid-sized cannabis firm Medreleaf in May 2018 for $3.2 billion.
Aurora Cannabis says cannabis 2.0 products will make up 20 per cent of Canadian cannabis sales in the next reported quarter. Press photo.
Aurora tightening operations
Aurora reported an adjusted earnings before interest, taxes, depreciation, and amortization loss of $80 million for the second quarter, which more than doubled its first quarter EBITDA loss.
The company said it had to ramp up costs for its launch of cannabis 2.0 vape pens, chocolates, cookies and mints. Aurora said marketing costs grew by $7 million as it rolled out a consumer education program alongside its Aurora Drift 2.0 brand.
The producer also reported a 20 per cent spike in general and administration costs as salaries and wages increased and two senior executives were handed severance packages.
However, the company preached fiscal responsibility for future quarters.
Aurora said the recent layoffs will help its save $40 million to $45 million by the end of its fourth quarter of 2020.
“I want to stress that we recognize the importance of reducing our cost structure,” said Glen Ibbott, Aurora’s chief financial officer. “We have taken decisive action to make change immediately.”
On the conference call, Ibbott said the company will look to cut costs further by making a detailed evaluation of all capital projects that it is currently undertaking. This include restructuring costs related to sales and marketing, travel and entertainment, technology and professional services.
The company also said keeping production costs below $1 per gram is key to success moving forward. The cost of production increased four per cent to $0.88 a gram in the latest quarter.
While previous leadership focused on premium cannabis brands from its Whistler, B.C. facility, new management said it is launching value brand Daily Special.
Ibbot said consumer demand for cheap weed — less than $9 a gram — now makes up 17 per cent of the Canadian cannabis market as of December. Meanwhile, the market share for premium pot dropped from around 35 per cent to 17 per cent.
Read more: Illicit pot market now 44% cheaper than legal industry: StatsCan
Aurora reiterated its outlook for fiscal third quarter that cannabis revenue would likely show modest to no growth due from its latest results due to continued industry headwinds. Company executives added that cannabis 2.0 products should make up 20 per cent of total Canadian cannabis sales in the next reported quarter.
Top image press photo via Aurora Cannabis.
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