Aurora Cannabis Inc., Canada’s second-largest cannabis grower, posted a $1.3-billion loss in the quarter ended Dec. 31, prompting a warning from interim CEO Michael Singer that the only path to survival in the struggling industry is through financial discipline and cost-cutting.
“A company cannot continue to show losses in a market where you can no longer raise capital,” Mr. Singer said on Thursday after the release of the company’s second-quarter results. Aurora announced last week a major overhaul to its business that included laying off 500 employees and renegotiating its debt agreements.
Aurora’s massive net loss for the quarter was driven by more than $1-billion in writedowns, principally on assets in Europe and South America. The company’s revenue was down 26 per cent sequentially, falling to $56-million from $75-million. The results were largely in line with numbers the company prereleased last week.
Consumer cannabis sales dropped to $23-million from $30-million the preceding quarter, as $6-million worth of product was returned unsold. An additional $4.5-million of revenue was written off because of price adjustments.
Even more striking was the fall in wholesale revenue, earned by selling bulk cannabis to other licensed producers, which dropped to $2.4-million, compared with $10.3-million in the preceding quarter.
Meanwhile, Aurora’s costs ballooned, with selling, general and administrative (SG&A) costs in the quarter rising 23 per cent to $100-million.
Mr. Singer, who took over as CEO after the departure of long-time leader Terry Booth last week, said Aurora’s board has been pushing for months for management to bring costs down. He also said there has been a desire to bring the business in line with more conservative expectations of industry growth.
“We’ve been burnt in the past … so we had to be realistic and say we’re only going to model in the things we can control. If there’s growth, great. But we’re right-sizing our business with the assumption that there may not be growth," said Mr. Singer, who is also executive chairman of the board.
The company is aiming keep capital expenditures below $100-million over the next two quarters, and is hoping to cut SG&A costs by half. It is targeting positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by its the start of its next fiscal year in July.
Analysts largely applauded Aurora’s restructuring move, while remaining skeptical of its ability to become profitable in the short term.
“The announced 500 layoffs will help to reduce these costs but we believe the targeted spending will be difficult for ACB to achieve without impacting its near term performance,” PI Financial Corp analyst Jason Zandberg wrote in a note on Thursday.
Canaccord Genuity Corp. analyst Matt Bottomley questioned whether the company’s plan to curtail spending at a time when it’s launching new products, such as edibles and vaporizers, was the best move.
“As an equity holder, if they’re now saying they’re going to reach EBITDA positivity in Q1 2021, I want them to hit that at all costs, because that’s what they’re going to be held to the fire for," Mr. Bottomley said.
"But from a business perspective, as long as they’re keeping their market share up and they’re growing with the overall market, I don’t think it makes sense to necessarily cut your spending to such a significant degree where you might lose market share in the next leg,” he said.
Aurora’s share price rose 2 per cent on Thursday, closing at $1.96.
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