The Canadian cannabis company stock took an eventful rollercoaster ride last week, hitting US$3.85 (C$5.12) last Wednesday, a 14.5% drop, before edging its way back up. Then, it headed south again yesterday, closing down 6.59% at US$4.11 (C$5.47).
Last week’s upward climb was triggered by Aurora’s release last Thursday of an update on its global operations and growth initiatives. Said CEO Terry Booth:
“Aurora takes its leadership position in the global cannabis industry seriously, and is committed to being open and transparent with all of our stakeholders.”
“The Aurora team is working to advance several major strategic initiatives in Canada, the United States and abroad aimed at further strengthening Aurora’s global position.”
The update provided a sweeping overview of the latest moves by the cannabis giant, especially in terms of its ongoing expansion throughout western Canada and Denmark, as well as operational overviews of its activities in Quebec, Ontario, the U.S., Lithuania, Latvia, Estonia and Latin America. It also provided an overview of deals and agreements to export to the United Kingdom, Poland and Australia.
In all, Aurora is active in 25 countries around the globe.
It could be argued the update was necessary to address the stock’s hemorrhaging since Sept. 11, when it went from US$6.49 (C$8.54) to US$3.85 (C$5.12) on Oct. 2, a drop of 37.7%, on the day before releasing the update. The update statement certainly did the trick: the stock immediately turned around, climbing to as high as US$4.51 (C$6.01).
But Has Anything Really Changed?
The main factor that triggered the downward trajectory has not been wiped from the books. And that factor was the Edmonton-based company’s disappointing fourth quarter earnings results.
Those results were concerning for two reasons: they failed to meet analysts’ expectations, but perhaps more importantly, they failed to meet the company’s own revised guidance that had just been lowered one month more. And as the company aims for its next quarter release one month from now, investors will be looking to its revenues.
But given the scope of the company’s ongoing expansions, they might also be looking at one other key metric: debt. And, more precisely, how its debt compares with other players in the sector.
Debt Set To Increase
Aurora has about $250 million (C$322.5 million) in net debt. And given its long list of ongoing expansion projects, it’s not surprising.
Work continues on several projects, including a 1.6-million-square-foot Aurora Sun facility in Medicine Hat, Alberta; a 1-million-square-foot Nordic Sky facility in Odense, Denmark; construction of a growing facility in Whistler, B.C.; and construction of an innovation centre in Comox, B.C. Its new headquarters for subsidiary Anandia Laboratories, a testing facility, was scheduled to open facility in Vancouver is scheduled to open today.
With all that expansion, it is not difficult to predict that its debt will continue to increase. By comparison, other majors in the sector, like Canopy Growth (NYSE:CGC), (TSX:WEED) and Quebec-based Hexo (NYSE:HEXO), (TSX:HEXO), have cash assets on their balance sheet.
All companies in the sector are under pressure to boost revenues, but for Aurora, given its heavy debt load, the pressure will be that much more acute. It unveils its next earnings report on Nov. 11.
HEXO CFO Resigns
The chief financial officer of Quebec-based cannabis producer HEXO Corp. announced his immediate resignation last Friday, just about four months after assuming the role.
In a statement, Michael Monahan said he is stepping down because the job requires that he spend most of his time in the Capital Region, which “isn’t possible for me at this time given my family’s needs.”
The news was greeted yesterday with the stock taking a more-than-6% drop.
Stephen Burwash, the company’s vice-president of strategic Finance, has been named as Monahan’s replacement.