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Aurora Cannabis Inc. is laying off about 700 employees, almost one-third of its staff, and closing five cultivation facilities in the company’s second major attempt in recent months to rein in costs after years of unsustainable expansion.

As part of the restructuring, the Edmonton-based marijuana grower said it expects to take about $200-million in impairment charges after writing down assets and inventory.

The announcement comes less than five months after the company laid off 500 staff and took more than $1-billion in write-downs and impairment charges. At the peak in 2019, Aurora had about 3,000 employees.

Canopy Growth Corp., Aurora’s largest competitor, has also laid off at least 700 staff this year and closed several large operations.

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Aurora and Canopy, like most publicly traded Canadian cannabis companies, are grappling with the after-effects of breakneck expansion between 2015 and 2018, which saw licensed cannabis growers amass gigantic real estate footprints in order to attract capital and boost their valuations.

The expansion was based on optimistic expectations about the legal cannabis market, which have not materialized in the short term. Legal sales are increasing from month to month, and more legal retail stores are opening in key markets such as Ontario. However, a recent report from the government-owned Ontario Cannabis Store estimated that just 19 per cent of sales in the province were being made in the legal market at the end of 2019.

“It has been apparent for some time that the capacity built-out and once promised by Canadian [licensed producers] is far in excess of near-term demand, a point exacerbated by the limited retail store rollout by a number of larger provinces,” Jefferies analyst Owen Bennett wrote in a note on Tuesday.

“In February, 2019, Aurora [was] touting a total of 15 facilities with a combined annual capacity of over 600,000 kilograms per year. This compares to annualized current industry sales volume of around 200,000 kilograms per year, and Aurora’s latest quarter’s run rate of around 50,000 kilograms per year,” Mr. Bennet added.

Aurora, which replaced its long-time chief executive Terry Booth in February, is now downsizing to reflect a more sober view of the market.

The latest restructuring will see the company close two facilities in Quebec, and one each in Alberta, Ontario and Saskatchewan. The last of these, Aurora Prairie, was previously CanniMed Therapeutics’ main cultivation asset. Aurora paid more than $1-billion for CanniMed in early 2018 after a hostile takeover fight. Aurora will continue operations at four facilities in Alberta, British Columbia and Ontario.

The layoffs announced Tuesday include 25 per cent of Aurora’s office staff, who have been let go immediately, and 30 per cent of its production staff, who will be let go over the next two quarters. The company says it has now reached its goal of bringing selling, general and administrative (SG&A) expenses down to a quarterly run rate of about $42-million.

Like most of its peers, Aurora has been bleeding cash at a staggering rate in recent quarters. But unlike Canopy or Cronos Group – which are backed by major alcohol and tobacco companies – Aurora has less cash to burn. It has funded much of its operations in recent months through an at-the-market share issuance program in which it sells equity at the going market price. In February the company had to renegotiate its debt covenants with lenders to avoid technical default.

“This has not simply been a cost cutting exercise,” interim CEO Michael Singer said in a news release. “Both the Canadian facility rationalization and inventory revaluation are expected to improve gross margins and accelerate our ability to generate positive cash flow.” The company declined to comment further.

Analysts who cover Aurora reacted positively to the new round of cost-cutting, but remained cautious.

“We think [Aurora] is making the right strategic decisions to turn its business around, however balance sheet risk keeps us on the sidelines,” Cowen analyst Vivien Azer wrote.

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