Canadian medical and recreational marijuana producer Aurora Cannabis Inc. ACB-T paid its chief executive officer $6.7-million in its last fiscal year – 38 per cent more than he earned the year prior, despite the company’s shares losing nearly half their value in fiscal 2023.
Aurora’s fiscal 2023 also lasted only nine months, to March 31, because of a change to its earnings reporting schedule.
Chief executive Miguel Martin joined Aurora in September, 2020, and over the past three fiscal years he made $16.1-million in total compensation. Over the same period, Aurora lost a combined $2.6-billion, a sum that includes non-cash impairment charges.
In fiscal 2023, nearly 40 per cent of Mr. Martin’s compensation came from a $2.5-million retention bonus paid in the form of restricted share units.
Responding to questions from The Globe, Aurora wrote in an emailed statement that the board of directors values good governance principles and that it consults with a leading independent compensation consultant. The company added that for fiscal 2023 “corporate performance metrics were either met or exceeded, which is reflected in the annual short term incentive pay component of total compensation.”
Five years ago, Aurora was one of Canada’s leading marijuana producers and investors were giddy about its potential in the run-up to the legalization of recreational cannabis use in the fall of 2018. At their peak, Aurora’s shares traded around $164 a piece.
But only a few quarters after legalization, investors started to question when Aurora and its rivals, including Canadian giant Canopy Growth Corp., WEED-T would become profitable. Soon afterward, investors started to abandon the sector.
Many producers brought in new management regimes to turn things around, but it’s been mostly misery for the sector since mid-2019. On Thursday, Aurora’s shares closed at 68 cents on the Toronto Stock Exchange.
Aurora has been plagued with the same problems that most of its rivals are dealing with, including Canopy: bloated operations, coupled with discount prices for recreational cannabis in Canada.
As legalization approached in 2018, many producers assumed that being bigger was better, so they built massive production facilities. Aurora also spent heavily to acquire rivals. In early 2018, Aurora bought CanniMed Therapeutics Inc. for $1.1-billion, then five months later paid $3.2-billion for MedReleaf Corp.
Aurora’s current stock market value is $240-million.
To cut expenses and deliver positive free cash flow for the first time, Aurora has been shuttering production facilities, including its once-prominent Aurora Sky facility in Edmonton. So far, the company has stripped out $400-million worth of annual expenses.
But that hasn’t been enough to make the company profitable, in part because the recreational cannabis market in Canada is oversupplied, which puts downward pressure on marijuana prices. Aurora has tried to focus more on medical cannabis and it is currently the Canadian market leader in this category, with 25 per cent of domestic sales. The company is also expanding its medical cannabis operations abroad, particularly in Europe.
“There is and will continue to be real and profitable growth opportunities in the global medical market for companies such as Aurora,” Mr. Martin said on the company’s most recent quarterly conference call with analysts in June.
The expansion plans have yet to pay off. “Aurora’s geographic diversity is a strength, but we are unsure if international sales will grow materially over the next few years without a major shift in policy from a large country,” CIBC World Markets analyst John Zamparo wrote in a note to clients in June.
Because the company still is not profitable, Aurora announced more expense cuts in June, which management said should save $40-million a year. The changes include closing the company’s Nordic production facility in Denmark that supplies its European operation. In the future, the region will be supplied with cannabis from Canada, where Aurora can produce much more cheaply.
Aurora now expects to produce positive free cash flow by the end of fiscal 2024.
Canopy, once Aurora’s chief rival, is experiencing similar woes. Earlier this year, the company said it was laying off 800 workers and shutting down its Smith Falls, Ont., headquarters.
The pain is widespread across the sector. Of all the bankruptcy protection filings through the Companies’ Creditors Arrangement Act last year, 40 per cent were by cannabis companies, according to law firm McCarthy Tétrault.
With files from Irene Galea