The surprise departure of a top executive at Aurora Cannabis Inc. is weighing on the company, with analysts growing downbeat on its outlook and investors sending its shares to a level not seen since late 2017, before marijuana mania hit Canadian markets.
Aurora’s stock dropped 10 per cent Monday, the first trading day after the company disclosed the abrupt departure of chief corporate officer Cam Battley. Mr. Battley had been Aurora’s public face, often handling media interviews and questions from analysts about the cannabis producer’s strategy.
“It is clear to us that the market is lacking conviction in Aurora, and this update will do little to help that,” Jefferies analyst Owen Bennett wrote in a research note to clients Monday.
Turnover of senior executives has been rampant among cannabis producers this year, with leaders at Canopy Growth Corp., Aurora, Aphria Inc. and CannTrust Holdings Inc. all departing. With share prices across the board already in free fall after investors lost confidence in the sector, the latest exit compounds the problem for Aurora, whose shares were already down 56 per cent year-to-date before the news broke.
“The biggest issue ... is trust, with multiple instances of Aurora missing targets or going against its word," Mr. Bennett wrote in his research note. "With Battley the ‘face’ of the company, this could have been a factor in his departure.”
Mr. Battley did not return a request for comment and Aurora declined to comment.
In the past few months, investors have seen Aurora miss its revenue guidance last quarter, despite issuing it only three months earlier; dilute shareholders by amending the terms of a convertible debenture, despite assuring shareholders it would not happen; and halt production-facility expansions shortly after announcing that they were progressing well.
Last month, Edmonton-based Aurora reported a 24-per-cent drop in revenue quarter-over-quarter and also announced that it was deferring for the foreseeable future the completion of a 1.6-million-square-foot growing facility in Medicine Hat, as well as halting construction work on a greenhouse in Denmark.
Late Friday, Aurora also revealed in a regulatory filing that board director Jason Dyck sold 1.08 million shares last week, or 57 per cent of his stake. Mr. Dyck did not return a request for comment.
“The sudden departure, during a period of insider selling, dwindling cash to cover payables and sector turmoil, does not send a strong message to investors,” MKM analyst Bill Kirk wrote in a research note to clients Monday. “Directors selling and executives leaving give us increased confidence that profitability is not on the horizon and Aurora’s 2.0 products will do little to turn the ship.”
Across the industry, producers are hyping “Cannabis 2.0,” a term used for the legalization of marijuana-infused foods, drinks and creams. After a disappointing first year of legalized recreational cannabis, Canadian companies, including Aurora, are hoping that a broader selection of cannabis products will entice potential users.
“We are ready [for Cannabis 2.0] and have launched a diversified portfolio of new product formats and are excited for Canadians to have access to high-quality, safe alternative cannabis products such as edibles, vape pens and other derivatives,” the company said in a statement Monday.
But even if the new wave of products boosts overall sales, Mr. Kirk says that Aurora and its rivals face a tough market. He noted that pricing is already decreasing in order to compete with the black market and that there is an oversupply of cannabis.
“Most new, legal markets have shown decreasing profitability for cultivation, yet consensus expects Canadian licensed producers like Aurora to defy precedents,” he wrote. "With legal price gaps widening versus the illicit channel, we believe growth and addressable market opportunities are smaller than others believe.”