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It is one of the largest cannabis companies in the industry but Aurora Cannabis (NYSE:ACB) has struggled mightily in recent times. That has been reflected in the company’s stock price, which has recorded a decline of as much as 80% this year so far. While the coronavirus pandemic and other factors specific to the cannabis industry may have had an effect, it should be noted that there are many other issues plaguing Aurora.
The legalization of marijuana in the United States could go a long way in boosting Aurora and many other cannabis companies. However, it should be noted that the company’s chronic profitability issues are not going to disappear.
The company has restructured its extensive cultivation operations considerably. Some of the cultivation centers have been closed in order to curb expenses. This move might lead to long-term profitability but at this point, Aurora is quite a bit away from being profitable.
On the other hand, Aurora has also lost its position as the top seller in the consumer cannabis category in Canada, as per its latest quarterly report. Overall revenues from consumer cannabis slumped by as much as 9% year on year in the last reported quarter. Canada is Aurora’s biggest market and any loss of dominance there is a worrisome development.
As part of the reconstruction process, Aurora is trying to focus on those products that have driven profits and the strategy has been in place for many quarters now. SGA (selling, general and administrative) expenses went down by as much as 18% year on year in the latest quarter.
On the other hand, the company has also managed to raise its cannabis production volume. That has allowed it to reduce the cost of production considerably. Aurora spent 27% less cash year on year to produce a gram of cannabis in the last reported quarter.
Aurora is going to put in place more cost-cutting measures next year and expects to generate positive earnings by the middle of 2021. However, it should be noted that Aurora is also facing a lawsuit from shareholders who have not been satisfied by the company’s measures to boost profitability.
That remains a considerable risk at this point. At this point, there are possibly too many risks associated with the Aurora stock. Hence, it could be a better idea for investors to perhaps keep an eye on the company and see how it progresses.
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