Aurora Cannabis (NYSE:ACB) has been a favorite of investors for a while now, and expectations are high that the company will be able to recover from a dismal 2019.
The rate at which Aurora expanded after Canada legalized medical cannabis in October 2018 convinced everyone that it could become the top player in this growing industry. However, some of its own mistakes — going too fast, too soon; spending money on expansions and acquisitions without paying attention to rising debts — along with external headwinds brought Aurora’s stock down more than 78% from its March 2019 highs.
So far, 2020 has somehow been lucky for the company, which does seem to be on a path to recovery. Let’s shed some light on its efforts this year.
The cost-cutting measures continue
Aurora expects that what it calls its “facility rationalization plan” will help it reduce expenses and improve margins. In June, it announced the closure of five of its smaller facilities, and it also intends to merge several other facilities into one by the second quarter of 2021, while ramping up operations at its Nordic facility in Europe. These changes will cost Aurora asset impairment charges of up to 60 million Canadian dollars in the fourth quarter of 2020, but will help it achieve its SG&A run-rate target of CA$42 million for the fiscal first quarter of 2021.
What should Aurora’s strategies be going forward?
Aurora’s move to expand its business internationally in markets that haven’t reached their full potential was a big risk. In my opinion, Aurora should instead pay attention to its operations in Canada that could improve this year — especially with more stores opening in Ontario, which just saw its 100th retail store authorization last month.
It should also look at expanding in U.S. markets that have seen tremendous growth. Currently, 33 states and the District of Columbia allow medical cannabis, and 11 states and D.C. allow recreational cannabis use among adults. A handful of additional states have some form of legalization on the ballot this year, which may expand the markets further.
A BDS Analytics report predicts that recreational markets in California, Nevada, and Massachusetts could grow at a compound annual growth rate of 20.8% and generate 41% of total U.S. legal cannabis sales in 2024. Furthermore, new markets including Arizona, New York, and Florida, if and when they legalize, could capture 32% of the 2024 market.
Aurora’s recent acquisition of Reliva — the proud owner of 20,000 retail stores — can help the company widen its footprint in the U.S.,…