Aurora Cannabis stock and other marijuana stocks fell on Tuesday after the Canadian cannabis producer announced a new CEO but forecast sales declines, delayed profits and massive charges as it overhauls its business.
Aurora Cannabis (ACB) said Miguel Martin had become the company's new CEO, effective immediately. Michael Singer, who was Aurora's interim CEO, will stay on as executive chairman.
Martin had been serving as Aurora's chief commercial officer since July. He was also CEO of Reliva, a CBD brand sold in the U.S. that Aurora acquired in May. Before that, Martin worked at Logic Technology, a maker of e-cigarettes, and tobacco giant Altria (MO).
Under Martin, Aurora said the company would focus on building off its market share in "key profitable Canadian consumer categories." Other priorities included growing its medical weed business in Canada and abroad, and develop new Reliva products.
Aurora also said it would pay $30 million to end its partnership with the UFC, a collaboration that would research the effects of CBD on UFC's fighters. Aurora said the move reflected a greater focus on near-term profitability.
Leadership Rotation, EBITDA Delay
Martin's appointment follows the departure of Terry Booth, the company's former CEO, in February. Late last year, Cam Battley, once Aurora's high-profile chief corporate officer, also left that post. Along with the leadership change, the pot producer, like others, has announced plans to cut jobs and close operations at facilities, as losses piled up and global ambitions failed to materialize.
Jefferies analyst Owen Bennett, in a research note, said some investors might take Martin's appointment with skepticism.
"Mr Martin was only just promoted to Chief Commercial Officer in July," he said. "The fact that he was given the CEO role so soon after would suggest limited availability of suitable (or indeed interested) parties externally."
"To this, there were arguably more expectations with ACB given the role of Nelson Peltz as a strategic advisor," Bennett added. Peltz, an activist investor, came aboard last year.
Aurora said it expected to reach positive adjusted EBITDA — or earnings before interest, taxes, depreciation and amortization — in its fiscal second quarter. In June, the company set that target for the first quarter.
Aurora reports its fourth-quarter earnings on Sept. 22.
Aurora Cannabis stock largely fell over the past two years as analysts grew more concerned about its cash reserves. Other marijuana stocks have also fallen, amid similar layoffs and efforts to shrink operations, rethink deals and bring in new executives more focused on the bottom line.
In the process, Aurora and other marijuana stocks have had to stomach some big charges, as the value of the company and some of its assets come down to earth.
Aurora on Tuesday said it expects to book a noncash write-down of goodwill of 1.6 million to 1.8 million Canadian dollars. The pot producer said that in doing so, it was considering "the book value of the Company relative to current market capitalization."
In further efforts to "recognize market realities," for its fourth quarter, Aurora said it expected other asset impairment charges to be as much as 90 million Canadian, related to "production facility rationalization." It will also book a charge of 140 million Canadian — an effort to "align inventory on hand with near term expectations for demand."
Canada's legal pot industry faces pressure from the illicit market, where product is cheaper. Legal operators have rolled out discount pot brands in an effort to compete. Spending on legal cannabis in Canada beat out spending on illegal cannabis in the second quarter — a first, BNN Bloomberg reported.
Aurora Cannabis Stock, Marijuana Stocks
Aurora Cannabis stock fell 11.6% to close at 7.52 in the stock market today. The stock has weak ratings from IBD. Its Composite Rating is 14. Its EPS Rating is 18.
Other marijuana stocks also fell. Canopy Growth (CGC), which is still in a consolidation pattern, slid 3.8%. Aphria (APHA) gave up 3.3%. Cronos Group (CRON) lost 2.8%. Tilray (TLRY) retreated 4.4%.
Aurora on Tuesday also reworked its credit line with its bankers. The revolving credit line is now smaller. So are the company's targets for EBITDA — or earnings before interest, taxes, depreciation and amortization.
Aurora on Tuesday said it expected net sales in its fiscal fourth quarter to come in at around 70 to 72 million Canadian dollars, down from 75.5 million in the prior quarter. Analysts expected 71.73 million, according to Zacks.
The company forecast cannabis net sales of between 66 million and 68 million Canadian dollars, also down from the prior quarter. Aurora said it expected adjusted gross margin of 46% to 50%. It expects sales, general and administrative costs, which include research and development, of between 60 and 65 million.
"While the company maintains that it is performing well in the medical segment, adult use remains challenged," Cowen analyst Vivien Azer said in a research note.