This week Aurora Cannabis announced that they would be selling one of their largest greenhouses which is located in Exeter, Ontario for $17 million. The 22-acre greenhouse with 15,000-square-feet of growing space is located on Exeter’s Airport Line. Aurora Cannabis acquired this property as part of its $3.2 billion acquisition of MedReleaf in 2018.
After looking at their Exeter facility Aurora Cannabis determined that the greenhouse would have required “retrofit and significant capital investment in order to meet Aurora Cannabis’s production standards,” Michelle Lefler Vice President, Communications & Public Relations said in an emailed statement Monday. “Aurora Cannabis has taken decisive steps to rationalize capital expenditures and align our cultivation footprint to current demand, including selling the Exeter facility.”
As most cannabis investors know, 2019 did not go as planned for most cannabis companies and now oversupply is becoming an issue. Many companies no longer need large production capacity, but instead, need cash. We feel that Aurora Cannabis is adjusting to the current market conditions accordingly. However, even as Aurora Cannabis takes further steps to raise cash, shares continue to sink. Aurora Cannabis hit fresh 52 week lows on the NYSE on Tuesday at $1.83.
There have been mixed analyst remarks regarding Aurora Cannabis’s recent sale, but the first to jump on the news was one of the most bearish analysts Bill Kirk from MKM Partners. On Monday Bill stated that “This listing, for 75 percent of former MedReleaf’s capacity, signals major writedowns ahead.” Bill continued, “We are also discouraged with the visibility of Aurora Cannabis’s strategy investors were unaware Aurora Cannabis was trying to sell Exeter.”
Bill has been bearish on Aurora Cannabis for sometime and has said that he expects $2-billion worth of writedowns. Aurora Cannabis’s market cap sits at $1.88 billion as of Tuesday’s close and the company has $3.0 billion of goodwill and intangibles on its balance sheet. “We believe more divestitures are likely, as Aurora Cannabis has a major cash problem, and this listing only covers about two weeks of cash burn,” Bill added.
Andrew Carter, an analyst with Stifel Financial Corp said, “Quite frankly, I would be concerned if they weren’t selling it at this point.” He noted the company had already begun hinting that it was going to be more mindful of its production capacity due to stagnant domestic demand. Andrew, who has a sell rating on Aurora Cannabis, also mentioned that it will take a while for the company to get to the point where it is “self-sustaining” and can “generate positive cash flow.”
Bank of Montreal cannabis analyst Tamy Chen basically reiterated Carter’s statement and called the listing of the 164-acre Exeter facility a move that made sense. “I’m not surprised by this announcement. I remember ever since they announced the MedReleaf acquisition in mid-2018, they were hesitant to say much publicly about their plans for Exeter.”
So is this a smart move by Aurora Cannabis or a sign for continued negative news out of the company? Only time will tell. As we move into the first-quarter of 2020, investors will be focused on what Aurora Cannabis’ management has to say regarding retail rollout, the 2.0 market, and international operations.
(Disclosure: The author owns shares of Aurora Cannabis)
ACB shares were trading at $1.73 per share on Wednesday afternoon, down $0.10 (-5.46%). Year-to-date, ACB has declined -19.91%, versus a 0.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...