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Aurora Cannabis’ $1.94 Billion Mistake Just Got Worse

Aurora’s cost-cutting effort resolves one problem but exposes another.

Aurora tries to backpedal to profitability

At this time last year, Aurora Cannabis was still widely viewed as the kingpin of marijuana. Although it didn’t have Canopy Growth‘s cash pile, it had 15 production facilities that, if fully operational, could produce more than 650,000 kilos of cannabis a year.

Aurora was also slated to have a production, export, research, or partnership presence in two dozen countries outside of Canada. With domestic markets expected to peak at an estimated 800,000 kilos a year, Aurora was counting on export demand from these foreign markets (especially in Europe) to gobble up its excess production.

But a quick glance at Aurora’s stock chart shows that things did not go as expected. Regulatory issues at the federal and provincial level led to all sorts of supply bottlenecks throughout Canada, and the kingpin of cannabis found itself overextended well beyond its capacity needs. As a result, Aurora Cannabis has been cutting costs at an extraordinary pace to conserve cash and push toward profitability.

Last year, the most popular pot stock halted construction on two of its largest production facilities and laid off 500 workers. Then, this past week, the company announced plans to close five of its smaller production facilities (Aurora Vie, Aurora Eau, Aurora Prairie, Aurora Mountain, and Aurora Ridge).

Though these moves have resulted in a number of one-time charges, management now believes the company is on track to generate positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the fiscal first quarter of 2021, as required by its new debt covenant.

Scissors cutting through a one hundred dollar bill.

IMAGE SOURCE: GETTY IMAGES.

This affirmation that Aurora Cannabis appears to be on track to meet its selling, general, and administrative (SG&A) cost guidance of $40 million to $45 million Canadian per quarter ($29.3 million to $33 million) was enough to nab the company an upgrade from Wall Street investment bank Stifel. And upgrades have been hard to come by for the company.

In other words, Aurora is attempting to backpedal its way into the profit column.

To Read The Rest Of This Article By Sean Williams on The Motley Fool
Published: June 26, 2020
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