Aurora Cannabis: Will This Marijuana Stock Make a Comeback in 2020?
Like many other marijuana stocks, Aurora Cannabis (NYSE: ACB) has been grappling with profitability issues for quite some time. This is weighing heavily on investor sentiment and the stock has remained volatile as a result. ACB’s price has plummeted over 85% since the first week of July 2019. But will this marijuana stock make a comeback in 2020?
Its third-quarter results in fiscal 2020 instilled some optimism in the market as Aurora reiterated its focus on improving its bottom-line. Aurora is making consistent efforts to get back in the green. However, investors are still awaiting a tangible revival in the company’s profitability.
Aurora faces significant challenges
Aurora’s mounting loss remains an everpresent challenge. Even as the Canadian pot company’s loss from operations in Q3 narrowed to $83.5 million from $119.6 million in Q2, it is far away from break-even.
The company is taking concrete steps to come back to profitability, but the road won’t be easy. Aurora is already dealing with existing challenges like regulatory headwinds, stiff competition, and supply chain issues.
The COVID-19 pandemic has worsened in Canada over the past few months and this could add to the company’s woes. In addition, the company is yet to find stable leadership that can steer it towards the shore.
Aurora bets big on its restructuring plan, Reliva acquisition
After announcing its Business Transformation plan in February, Aurora again reiterated its restructuring plans in a press release on June 23. The plan not only prioritizes cost-cutting but also realigning overall operations. The company revealed that it is right on track and expects an SG&A run rate of approximately $42 million through the first quarter of 2020.
A 30% downsizing of production staff over the next two quarters, and a 25% reduction in SG&A staff with immediate effect would be instrumental in lowering personnel costs, announced Aurora. Besides this, the cannabis leader has also initiated the closure of five of its facilities during the next two quarters to bring in production efficiency while improving the gross margin. The company wants to concentrate on “highly efficient production sites.”
Aurora’s solid revenue growth is the biggest indicator of its potential. Its strategic acquisitions have also played a crucial role in expanding its markets outside Canada to Germany, Latin America, and Denmark. The company’s recent acquisition of Reliva is a strategic attempt to gain a strong foothold in the US hemp-based cannabinoid market and boost its EBITDA.
Will Aurora make a comeback in 2020?
The pot company can only make a comeback if it manages to break-even in the fourth quarter. Aurora has missed its EBITDA projections in the past and hasn’t issued any guidance for Q4. However, if it ends up in the red, the stock could take another major beating. To regain its lost ground, Aurora needs to focus on its restructuring plans as well as R&D initiatives.
The next two quarters are particularly critical for the marijuana stock. Until then we need to wait and watch how Aurora navigates these rough waters.
Aurora Cannabis: Will This Marijuana Stock Make a Comeback in 2020?
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