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Aurora Cannabis, which a few short months ago in December was being watched by investors as a giant crumbling under its own weight is making drastic changes to their ideology and market standing to revitalize Forbes, 2019
“America’s favorite pot stock.”
Which crashed in 2019 due to a mad dash to grow weed like a weed as though Canada was Bhutan, damning the fact that not even and army of Snoop Doggs (who smokes 81 blunts a day, by the way) would be able to consume Aurora’s projected “500,000 kilos (551 tons) per year,” or 250 million blunts, at 2 grams a piece, which, according to the Snoop metric, would take 3,086,420 days to smoke.
That’s a long time, but that’s just one producer. Canopy Growth, Aurora’s leading competitor at the time, was also projected to produce 500,000 kilos a year. So, that’s over 6,172,840 days or, 16,912 years of smoking for the Dogg. That’s a lot of weed man. So, Aurora Cannabis and a lot of their competitors dug themselves into a hole, and a deep one. They only sold 4% of the cannabis they produced in July 2019, again according to Forbes.
Because of such huge losses in stock prices, revenue and just product, many companies have seen huge shifts in their command structure. In January, David Klein, previously the finance chief of the alcohol beverage company Constellation Brands was appointed CEO of Canopy Growth following Bruce Linton’s removal from office in July of 2019, you know, when the whole crash was happening. But that’s old hat, more recent news is the appointment of Miguel Martin as the new CEO of Aurora Cannabis.
Martin has around 25 years experience in the consumer packaged goods industry, called CPG for short. Martin worked as Senior Vice President of Sales and Distribution for Altria (who’s company portfolio includes the tobacco companies of Marlboro and JUUL labs). After which Martin moved to e-cigarettes by becoming president of Logic Technology in 2013. He left Logic in January of 2018, and in December of the same year purchased, along with a team of “retail and wholesale industry veterans,” Reliva CBD.
This small, Massachusetts based CBD company, would, under Martin’s leadership, become, as of January, 2020, the #1 selling retail brand of CBD products in the United states (IRI). Mainly because the company is both one of the few CBD product producers to be approved by all national wholesalers in the United States and is sold in over 18,000 retail stores while enjoying exclusive distribution with many national retail chains.
That’s an impressive resumé.
And this behemoth of a CBD company was acquired by Aurora on May 20, 2020. This acquisition placed Martin on the Aurora management team and allowed for Aurora’s “Strategic entry to the U.S. [as] aligned to Aurora’s business transformation plan.”
What’s Aurora’s transformation plan? Well, “[Building a] leading brands under Reliva in the US CBD market,” is part four of their new business plan. Part one is to grow their lead in the market of several key, profitable Canadian consumer categories. Part two is to protect and enhance their leading market share in Canadian medical. Part three is to grow their international medical business.
All of that is well and good, but how do they plan on doing such a thing with their shareholders shaken, their profits minimal and everyone being resigned to the fact that Aurora is a doomed company? Well, for the most part, but cutting back on a lot of their spending. According to Michael Singer, executive Chairman and former interim CEO of Aurora, the company is going to focus on “Rationalization of our cost structure, reduced capital spending, and a more prudent and targeted approach to capital deployment.” Which basically means that the company is going to look at what their spending, make sure they aren’t overspending, and then try to spend less. One way they have already succeeded in this by reducing their SG&A expenses (Selling, General and Administrative, or all of the costs not directly tied to making a product or performing a service). Expenses which were over $100 million in Q2 (April 1, to June 30) of 2020 and will be down to around $60 or $65 million in Q4 (October 1, to December 31). That’s at least $35 million dollars saved every 90 days. That could buy Snoop 700,000 blunts at $50 a blunt.
The industry leader is also cutting their operational costs by up to $10 million a quarter. They also have ended their partnership with the UFC, which was studying the effects of CBD on UFC’s fighters. Aurora may have to pay out $30 million to break the contract, but they are avoiding another $150 million in fees, research costs, and marketing expenses over the next five years.
Beyond just reducing cost, Aurora is increasing their financial flexibility. Which, to everyone else, means their expanding their credit line. Previous years have recorded Aurora’s debt-to-equity ratio at around 0.14:1 using only their long-term debt. (A debt-to-equity ratio is the ratio of how much debt a company can have compared to the total value of the entire company.) The ratio has been adjusted to allow up to 0.28:1 for Q4 2020 and Q1 2021. This ratio will then be reduced following March 31, 2021.
That’s not all Aurora is doing to increase their financial flexibility, their also reducing their EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization [paying off a debt over time in equal installments], which is a proxy for cash flow.) milestones from $51 million to $20 million. Which basically means that the company doesn’t expect to meet the profits they originally thought they would by this year. Which is a good move, considering they took too heavy of a toke for their lungs. On reducing, Aurora is also going to reduce the amount of their revolving facility (or a credit line that allows for a withdraw, pay, withdraw again cycle) from $43 million to $15 million to reduce the standby fees. Glen Ibbott, Aurora’s Chief Financial Officer has high hopes for the changes, stating “We have established what we believe to be a secure foundation from which to drive shareholder value in fiscal 2021, and to firmly establish Aurora as a profitable, growth-oriented leader in the global cannabinoid market.”
All of this, because the industry giant is going to focus on more near-term profitability before getting into the big, long term projects, like doing intense studies with the UFC. Michael Singer sums it all up beautifully, saying “The Aurora Board and I firmly believe that under Miguel’s leadership, Aurora’s strategic direction going forward will be characterized by leading market performance, sustainable growth, profitability and value creation for shareholders.” That’s a very positive outlook.
Luckily, Terry Booth, founder and former CEO of Aurora has given his blessing to the incoming CEO, stating “It’s time for more of a button-up CEO, not a growth CEO. You want a capital market guy or gal.” Which, it has to be said, Miguel Martin is definitely a capital market guy, or gal. We don’t judge.
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