Aurora Cannabis Inc. (ACB) on Tuesday announced plans to cut jobs and close five of its plants as it grapples with the financial impact of the coronavirus pandemic on the cannabis industry.
The Canadian cannabis producer said it is reducing its selling, general and administrative (SG&A) staff by 25% and will cut 30% of its production workforce over the next two quarters. In addition, five of Aurora’s plants will be shut down so that production and manufacturing can focus on the company’s larger scale and highly efficient sites, it said.
“With today’s announcement we have achieved our stated SG&A run-rate target and expect to operate at approximately C$42 million ($31.07 million) for the first quarter of fiscal 2021,” Aurora’s Executive Chairman and Interim CEO Michael Singer said. “The further cost savings and margin improvement to be realized from our facility rationalization plan is another example of our commitment to deliver greater efficiency throughout the business.”
As a result of the plant closures, Aurora expects to record production asset impairment charges of up to $60 million during the fourth quarter this year.
Singer added that both the Canadian facility rationalization and inventory revaluation are expected to improve gross margins and accelerate the company’s ability to generate positive cash flow.
“We believe that we now have the right balance for the long-term success of Aurora – market leadership, financial discipline, operational excellence, and strong execution,” Singer said.
With Aurora’s stock down 47% since the start of the year, the news may offer some relief for investors. Shares rose less than 1% to $13.80 in afternoon U.S. trading on Tuesday after earlier gaining as much as 9.8%.
MKM Partners analyst William Kirk, who has a Hold rating on the stock with a $13.3 price target, said last month that despite the efforts to streamline production, Aurora is still growing far more cannabis than it is able to sell.
“We don’t see demand growth accelerating enough to consume this inventory and expect Aurora to ultimately write it down,” Kirk wrote in a note to investors. “With an uncertain revenue outlook, we don’t yet have enough confidence in cost-cutting measures to rely on their 1Q’21 positive adjusted EBITDA goal.”
Overall, Aurora stock has a Hold analyst consensus backed up by 9 Holds and 2 Sells versus 3 Buys. It appears analysts are also still looking for more confidence in the company’s operations as the $11.32 price target suggests downside potential of 18% over the coming year. (See Aurora stock analysis on TipRanks).
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