Convinced
that Canada could surf a wave of global cannabis legalization, Terry Booth
built Aurora Cannabis into
one of the world’s most highly valued pot producers—second only to
arch-rival Canopy Growth. That was a year ago.
Since
then, Canada’s pot stocks have collapsed under a glut of unsold weed, and late
Thursday, Aurora (ticker: ACB) announced that Booth will immediately retire as
his company tries to conserve cash by laying off 500 employees. Chairman
Michael Singer will fill Aurora’s CEO slot until a new chief can be found. New
terms from Aurora’s bank lenders now require the company to become cash-flow
positive by the September quarter.
Rumors
of layoffs and Booth’s resignation circulated all day Thursday and knocked 5.6%
off the price of the stock, leaving it at $2 by the close.
“We’re
positioning Aurora for sustainable long-term growth,” said Singer on Thursday’s
5 p.m. EST conference call, “but we need to manage our business for the
realities of today’s market.” Booth didn’t speak on the call.
The
company also preannounced poor results for its December quarter, with cannabis
sales falling about 10% sequentially to between 62 and 66 million Canadian
dollars (US$47 million-$50 million). And that’s before product returns and
price cuts, which could reduce December’s net sales below C$54 million. After
overhead costs of some C$100 million, Aurora will have a big loss in the
quarter.
Worse
yet, the company said it would take nearly C$1 billion in write-offs in the
form of impairments of about C$200 million and up to C$775 million in goodwill
write-downs. Complete results for the December quarter will be released next
week.
Booth
was preceded out the door by his No. 2 officer, Cam Battley, who stepped down in
December. With Booth’s departure, Canada’s pot business has lost most of its
pioneering entrepreneurs. Aphria (APHA)
founder Vic Neufeld left in early 2019, after a short seller found that he held
undisclosed interests in companies acquired by Aphria. In July, Canopy (CGC)
made founder Bruce Linton walk the plank.
As
Canada’s recreational sales of weed have disappointed expectations, leading
producers discovered that they’d overbuilt production facilities and produced
too much. Layoffs have rippled across the industry in recent weeks. On Tuesday, Tilray (TLRY) said it
was cutting 10% of
its workforce. Earlier cuts were announced by Canopy and HEXO (HEXO).
Aurora’s
cannabis sales fell 25% from its June to September 2019 quarter, to C$71
million. On just the September quarter’s sales, however, the company burned
through C$40 million in negative cash flow. Counting its hefty capital
expenditures, its negative free cash flow was a whopping C$125 million for the
quarter.
The
shares of licensed producers have plunged more than 50%, on average, over the
past year. Aurora shares are down 80% since their March 2019 peak at 10
bucks. Barron’s readers were well-warned.
Aurora
was one of Canada’s biggest producers and its biggest disappointment. A former
electrical contractor, Booth started building sprawling greenhouses for his
venture while rivals were still writing business plans.
Booth’s
custom-designed production facilities weren’t cheap, so Aurora became the first
Big Weed client of the investment bankers at Canaccord Genuity Group
(CF.Canada), raising hundreds of millions of dollars to fund millions of square
feet of greenhouses.
Canaccord
established an empire in cannabis banking, and Booth’s Aurora was the jewel in
Canaccord’s crown. The investment dealer’s executives invested in Aurora for
their own account, and it made fortunes for some of
them.
With
sell-side analysts predicting that
marijuana usage would displace booze and tobacco, established
companies in those sin sectors looked for beachheads. Canopy Growth secured a
huge investment from the beer and wine producer Constellation Brands (STZ),
while Cronos Group (CRON)
got the backing of tobacco giant Altria Group (MO).
Aurora
seemed left out of the alliance formation, so in early 2019 it brought onboard
the activist
investor Nelson Peltz with the mandate that he hook the company
up with the consumer packaged-goods firms he knows so well. So far, no big
deals have been announced.
No comments:
Post a Comment