Aurora Cannabis Inc (TSX:ACB) (NYSE:ACB) (FRA:21P) CEO Terry Booth was likely not ready to give up the captaincy of the ship he built. He was scheduled to be our guest on the show three weeks in a row, and cancelled three times in a row. Now we know why.
Now with both Booth and Battley packed off into purgatory, the question is: What can be done to patch the holes in this rapidly sinking vessel?
All eyes are now on Executive Chairman Michael Singer. He has as long and deep a history in the Canadian cannabis scene as any executive – he was CFO of Bedrocan when it was acquired by Canopy Growth, and is widely regarded as fiscally conservative.
But in Aurora he inherits a bloated, far-flung behemoth that is reminiscent of Napoleon’s ill-fated Russia campaign. Napoleon’s army got stretched out over a distance that its supply chain couldn’t service, resulting in their ultimate defeat.
With over 1 billion shares outstanding, there is no compelling reason for any new equity financing. The company’s real estate portfolio is probably already encumbered by covenants in its remaining debt.
Despite a cash balance of $156 million and 500 layoffs, Aurora’s burn rate, even with facility construction halted around the world, is going to remain onerous. And the availability of capital in the entire cannabis industry is near non-existent.
Looking at the insider’s list, there are no employees who are incentivized to remain in terms of shareholding. All the large positions disclosed there are mostly due to employee option grants and/or restricted share units.
So can Aurora survive the convergence of all these negative factors?
Highly unlikely. Large debenture payments in the future totalling over $400 million make survival unlikely, as the company is probably worth more sold as parts to its debenture holders. For shareholders, the outlook is even more bleak, as this incremental slide into oblivion threatens to wipe out anyone who is hoping for a recovery being long the stock.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.