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Aurora CEO: “We will be profitable before others”

Aurora Cannabis Inc. Chairman Michael Singer made a statement today that the firm will reach profitability before “any of its peers”, however, declined to comment by when this will happen.

We spoke yesterday about the bloodbath that was Canopy and Aurora earnings. The chairman saying Aurora will beat its competitors is saying they will be the one-eyed king in the land of the blind. Reach profitability before your competitors isn’t really an argument that attests to your strengths, it’s one that is banking on your competitors’ weaknesses.

The reason I say this is because Aurora has revised its guidance time and again, only to fail in delivering the changed guidance. In January, the firm made a claim to achieve sustained EBITDA (earnings before interests, taxes, depreciation, and amortization) in the quarter ending June 30.

Then, it changed its projections in August to say that it’s “on track”. Finally, the firm went on to report an adjusted loss of $39.7 million, when analysts predicted it would only lose about $20.8 million. This isn’t missing your earnings estimate by 1 or 2 percentage points. This is missing an earnings estimate by almost 100%+.

In Aurora’s defence, they do have the capabilities to achieve economies of scale in production, but they’ve also built up a consistent track record of failing to deliver on their promises.

Shares slid as much as 18% this evening, reaching their lowest in two years, closing at $2.73 USD.


MedMen’s catastrophe

In today’s edition of Cannapocalypse™, we have MedMen ($MMEN) cutting over 190 jobs, including 20% of its corporate workforce.

We spoke at length yesterday that there are one of two ways to make profits. Cut costs, or raise revenues. MedMen is adopting the former approach to stop the bleeding. The firm will also divest its non-core assets, including the sale of its stake in Treehouse Real Estate Investment Trust for net proceeds of $14 million.

The company will sell its minority stakes in various brands for net proceeds of $8 million and has engaged Canaccord Genuity Corp. to “explore strategic alternatives”. It will also limit new openings in 2020.

Bierman is willing to chop off limbs to save the body. He expects to save about $47 million a year from the layoffs.

The stock closed at CAD $1.29, down 3.73%.


Dow sets record at 28,000

The Dow crossed 28,000 for the first time this Friday, closing at a recession fears and extending the decade long bull market run.

The Dow is an index that tracks 30 blue-chip stocks and is one of the oldest, most popular, and most closely tracked exchanges in the world. Disney ($DIS), Exxon ($XOM), and Microsoft ($MSFT) are all members of the index.

A solid quarter of earnings coupled with optimism around trade talks pushed the markets to all-time highs. Today’s record-setting was partly driven by White House economic adviser Lawrence Kudlow who indicated progress toward a potential trade deal with China, and Fed Chairman Jerome Powell, who commented on the strength of the US economy.

Additionally, data released about retail sales showed a rebound in October, asserting investors of US consumer spending and stable aggregate demand.


Fed Flags Potential Risks

The record high close for the Dow comes at a time when the Fed released its financial stability report today citing elevated asset prices and high debt as potential risks. More specifically, the Fed explored four categories of potential vulnerabilities to the economy:

  1. Elevated valuation pressures, signalled by asset prices that are high relative to economic fundamentals or historical norms and are often driven by an increased willingness of investors to take on risk.
  2. Excessive borrowing by businesses and households leaves them vulnerable to distress if their incomes decline or the assets they own fall in value.
  3. Excessive leverage within the financial sector increases the risk that financial institutions will not have the ability to absorb even modest losses when hit by adverse shocks.
  4. Funding risks expose the financial system to the possibility that investors will “run” by withdrawing their funds from a particular institution or sector.

The Fed has also categorised cybersecurity developments, especially in the crypto-asset space as “novel and potential” threats that are “difficult to quantify”.

The report is essentially an assessment of the US economy’s “stress levels”. It does not mean that things are going from bad to worse in a very short amount of time. It also does not mean that there is nothing to worry about.

It’s more like a blood test that tells you your cholesterol’s elevated. It doesn’t mean you panic about when you might get a heart attack, but rather you realise it’s time to start eating healthier.


Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

Arth Gupta

Arth is currently studying Philosophy and Economics at The University of British Columbia. He's a man of varied interests that range from existentialism to credit default swaps. If you're interested in grabbing a coffee, shoot him an email at arth@equity.guru

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