After news broke that the Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB) CEO stepped down and that the company is laying off 500 members of staff amidst cost-cutting efforts, ACB stock dropped 17% by the end of Friday. Today, it continues to trade down, falling another 8% and resting currently at $1.56.
Now, Rich returns with his continuing coverage of Aurora. Is this the cannabis dumpster fire that refuses to burn out? Or is does a mammoth slide for one of the biggest cannabis stocks create an incredible long-term play?
“If we’ve found the bottom, it could be an incredible buying opportunity,” says Rich. “But I believe it could go lower because there’s a lot of negative pressure right now.”
What Will Change About Aurora Cannabis?
While Aurora was previously focused on global expansion—having established operations in 25 countries—it appears the company is looking to reign in its growth for the foreseeable future.
Rather than buying new assets, the company announced plans to record asset-impairment charges of C$190 million to C$225 million and write-downs of C$740 million to C$775 million. It will also bring capital expenditures under C$100 million for fiscal 2020.
Michael Singer, Aurora Cannabis’s Executive Chairman and Interim CEO, called these moves “necessary steps that reflect a fundamental change in how we will operate the business going forward.”
According to Aurora’s Chief Financial Officer, Glen Ibbott, the assets impaired are primarily in South America and Denmark. Its Canadian assets are not affected by the charges.
Aurora is now set to focus on core areas of operation. These include the Canadian consumer market, the Canadian medical marijuana market, established international medical markets, and US market initiatives.
The write-downs suggest that Aurora will largely give up on international ambitions beyond the US.
Will Cutting Revenue Projections Hurt ACB?
According to MarketWatch, Stifel analysts say that the company’s 2020 guidance suggests that cannabis revenue will lag its forecast by about C$20 million. It also implies an adjusted EBITDA loss of C$67 million. Second-quarter guidance implies a decline in revenue from the first quarter.
“While market factors are well-known, this update suggests a weaker in-market performance, and we believe it will be difficult to improve from here while prioritizing investment,” the Stifel analysts wrote.
Despite the conservative outlook, Ibbott says Aurora Cannabis will become more sustainable and profitable.
“We believe that the long-term opportunity for Aurora remains very compelling, despite a slower-than-anticipated rate of industry growth in the near-term. We also believe our approach to rationalizing the business and conservatively improving our balance sheet positions Aurora in a more stable position for sustainable growth going forward.”
The company expects to pay between $2 million and $4 million on severance and other one-time charges related to the cost-cutting. This will be mostly incurred by the fiscal second and third quarters.
“Some people are keeping a $2.00 price target, some say it’ll go down to $2.00,” says Rich. “Management might be lowballing expectations, but I don’t know what to think.”
What do you think? Is this an opportunity for Aurora Cannabis or does ACB continue to go down from here? For more information about this company, check out Rich’s breakdown of its 2020 ambitions.
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