Aurora Cannabis (ACB.T) dumps founding CEO Terry Booth as $1 billion in assets and goodwill to be written off

02/06/2020

Alberta-based Aurora Cannabis (ACB.T) took a long trade halt today as it prepared to announce what the online rumour mill had been surmising all day – that the founding CEO of the company, Terry Booth, was out.

What the markets eventually got was not just confirmation of that news (framed as a ‘retirement and succession plan’), but a fairly detailed update on the debt situation facing the company, and how the company plans to reinvigorate itself, lower costs, and come blasting out of its current stock price doldrums

Aurora Cannabis Inc. has plans for a chief executive officer succession and board expansion, the latter of which is detailed in a separate announcement released this afternoon. The company also announced a business transformation plan that better aligns selling, general and administrative expenses, and capital expenditures with current market conditions.

These combined changes are consistent with, and evidence of Aurora’s commitment to, achieving positive EBITDA (earnings before interest, taxes, depreciation and amortization) and cash flow as rapidly as possible, while still maintaining the ability to capitalize on longer-term Canadian and global cannabis market opportunities.

That’s news a lot of people had been waiting for. We’re hearing there are options available to Aurora to lower its debt but, much as was the case with Canopy Growth Corp (WEED.T) last year, none involved carrying the current CEO along.

Sadly, they don’t appear to involve carrying the front line staff along either, at least not in numbers matching last quarter.

The company:

Management today announced sweeping changes intended to rationalize the cost structure and balance sheet going forward. The company believes this will better align the business financially with the current realities of the cannabis market in Canada while maintaining a sustainable platform for long-term growth.

These actions are expected to include significant and immediate decreases in selling, general and administrative expenses and capital investment plans.

Bloomberg:

Aurora Cannabis Inc. plans to cut its workforce by about 10 per cent, the latest cannabis company to slash jobs in an effort to move toward profitability, according to a person directly familiar with the matter.

The company, which has approximately 3,400 staff across more than 20 countries around the world, is expected to announce the job cuts in the next few days, the person said.

Booth will stick around for a bit as an advisor and director, as is tradition:

Mr. Booth continued: “As part of the succession plan, I will become a senior strategic adviser to the board and remain a director. Additionally, we’re welcoming new independent members: Lance Friedmann and Michael Detlefsen, who bring a wealth of strategic and hands-on consumer products industry experience to the organization.”

That’s the good news. This is the bad:

… When Aurora formally reports its fiscal second quarter 2020 results, it expects to report asset impairment charges on certain intangibles and property, plant and equipment in a range of $190-million to $225-million and writedowns of goodwill in the range of $740-million to $775-million.

A billion dollars written off.

A billion.

That’s money raised by Aurora selling stock, blowing out its share structure, diluting shareholders in a desperate bid to hang with Canopy.

That’s assets paid for at a premium, supported sometimes for years, and now blown away like farts.

As far as market reaction, it’s almost entirely negative. After hours trading in the US has the stock down below $2 and social media reaction hasn’t been trumpeting the virtues of austerity.

Personally, I like the job cuts (as much as one can) and rejigging of finances as a necessary and very overdue correction to the Aurora model, and if a billion has to be written off ever, after you’ve jettisoned the guy responsible is pretty much the time to do it.

Aurora’s next financials will come out February 13.

Which means, if you wanna play dead cat bounces and look for a bottom over the next few days, you might want to stand clear of the blast zone until at least next Wednesday.

OUR THOUGHTS:

This was always looming and anyone still in on ACB this morning, thinking it was a machine and only going to go up, hasn’t looked at a balance sheet. There’s honestly nothing shocking here. Not that it happened, not why.

Aurora borrowed and spent like a drunken sailor and gambled that the chits wouldn’t be called in until it had a chance to get profitable.

But you never get profitable when you’re overpaying on everything and putting growth above core business. Terry Booth did a great job of building value, turning what was once a lawsuit-hampered mining shell into a multi-billion dollar company. But just as we saw with Bruce Linton at Canopy, and Vic Neufeld at Aphria (APHA.T), building a market cap isn’t the same thing as building a business.

Like winning a sprinting race by being shot out of a cannon, getting the finish line first means little if you arrive in pieces.

ADDENDUM:

A lot of media outlets today were running this news quoting ‘unnamed persons’, pretending they’ve actually talked to someone at the company and had the info properly sourced, and were not just repackaging twitter commentators who scooped them.

Credit where it’s due to the guy who should be running the victory lap on this one. We’re not exactly buds, but he did the work and deserves his moment.

In an earlier version of this story, in discussing the lack of attribution by several reporters, I incorrectly linked to the work of BNN reporter David George-Cosh as an example of that practice. I’ve since spoken to DGC and he’s demonstrated he worked with his own sources, so I’m more than happy to correct the record. 

— Chris Parry

FULL DISCLOSURE: Never had a commercial relationship with the company, never bought the stock, but will be watching once the blood is hosed off the track.

 

Related Posts

Latest Post

Leave a Reply

Your email address will not be published. Required fields are marked *