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Wednesday, May 31, 2023
Mugglehead Magazine
Alternative investment news based in Vancouver, B.C.


Aurora stock falls amid more large losses and cost cuts

With a massive $164.7M Q3 loss and a second round of cuts, the Edmonton producer is illustrative of troubles in the Canadian cannabis industry

Aurora stock falls amid more large losses and cost cuts
Despite massive losses and weak sales, Aurora says it benefits greatly from having built a diversified cannabis business across domestic medical, international medical and adult-use markets. Press photo

As American pot companies continue to showcase massive growth, Aurora Cannabis Inc. (TSX and NYSE: ACB) is demonstrating how much further their Canadian counterparts are falling behind.

Late Thursday, the Alberta-based company revealed its second cost-cutting plan in just over a year after reporting another disappointing quarter that included a $164.7-million net loss.

Aurora is looking to save between $60–80 million in annualized cost efficiencies over the next 12 to 18 months, as its third-quarter loss topped the $292.8-million loss it reported in the previous three-month period.

The firm said its plan will target production costs, facility and logistic expenses, as well as organizational efficiencies and spending related to insurance and capital markets.

Like many of Canada’s 300 licensed producers, Aurora blamed Covid-19 restrictions and provincial pot distributors cutting back on inventory for weak finanical growth in early 2021.

Those issues have exasperated ongoing struggles for companies in the highly competitive Canadian sector slammed with supply gluts and concerns over quality.

In the three months ended March 31, Aurora said it made $55.2 million, down 23 per cent from second-quarter net revenue of $67.7 million.

Adult-use cannabis sales fell even harder quarter-over-quarter to just $18 million from $28.6 million.

Aurora stock falls amid more large losses and cost cuts

Aurora’s flagship 800,000-square-foot cannabis facility, located near Edmonton International Airport, has been running at 25-per-cent capacity amid oversupply issues in the Canadian pot market. Press photo

But Aurora said it hopes cutting costs will help it gain more traction as the industry waits for lockdown measures to lift.

“We are not simply waiting the process out in anticipation of normalization followed by an eventual rebound,” CEO Miguel Martin told analysts Thursday evening.

“We are determined to continue pulling the levers that we can to reduce our cost structure and extract further efficiencies from our operations.”

Martin took over as top boss of Aurora last fall.

Since February 2020, the firm has laid off hundreds of workers and closed down at least five facilities as part of a major overhaul to deliver $300 million in annual savings.

Read more: Aurora shares slump on latest round of cuts

Martin called current market conditions “competitive” but expects some will be temporary.

“There is a glut of what I would describe as low-cost flower in the market and that’s causing some irrational pricing, but I do believe — having talked to the provinces and talked to retailers — that there is an interest in holding margins up and people actually making money,” he said.

“Maybe it’ll take a little bit longer than people would have wanted because of the situation we’re in with Covid.”

Aurora to focus on medical segment, eyes US pot sector

As the pandemic continues to plague Canadian retail, Aurora says it’s focusing on its medical segment in the country and in Europe.

The firm will start producing cannabis at its European facility to service the continental medical market, saving it from shipping products from Canada.

Third-quarter medical sales remained steady for Aurora at $36.4 million, compared to $38.9 million in the prior quarter.

The company is also looking closely at developments in the American cannabis market as Washington D.C. lawmakers are expected to reveal a new legalization bill sometime soon.

Meanwhile, U.S. cannabis companies operating in state-legal markets have reported massive growth and solid profits over the past year.

Florida-based Trulieve Cannabis Corp. (CSE: TRUL) (OTC: TCNNF) posted an industry-leading positive adjusted earnings before interest, taxes, depreciation and amortization of $110 million (US$90.8 million) in the first three months of 2020.

By comparison, Aurora reported an adjusted EBITDA loss of $24 million in the same span.

Read more: Curaleaf plans to stay on top of US pot boom

Read more: Green Thumb stock drops despite record pot sales

Read more: Harvest Health deal to test Trulive’s industry-lead profits

Aurora says it will transfer its U.S. stock exchange listing from the New York Stock Exchange to the Nasdaq on May 24.

The company also made changes to its board, with Robert Funk as its new independent chair, replacing Michael Singer, who will maintain a board seat.

Aurora finished the third quarter with $520 million in cash, and plans to raise another $300 million through an at-the-market offering.

But unlike his rivals, Martin doesn’t appear to be making any notable acquisitions.

This year, Tilray Inc. (TSX: TLRY) (Nasdaq: TLRY) merged with Aphria Inc., while Hexo Corp. (TSX: HEXO) (NYSE: HEXO) revealed a plan to buy  Zenabis Global Inc. (TSX: ZENA), and Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC) scooped up Supreme Cannabis Co. (TSX: FIRE) and private operator Ace Valley.

Martin says there’s a chance Aurora might buy a smaller technology-related cannabis firm, if his team finds the right deal.

Aurora shares fell 8 per cent on Friday to $8.20 on the Toronto Stock Exchange.


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