Aurora Cannabis announces new CEO amidst dismal business updates (AGC)
Yesterday, Miguel Martin was appointed CEO of Aurora Cannabis, effective immediately. Martin was first promoted to Chief Commercial Officer in July 2020 after serving as president of Aurora USA and head of Reliva LLC, an Aurora-owned American producer of hemp-derived CBD. Martin comes with extensive experience in the CPG industry, holding senior roles with Logic Technology, one of the largest manufacturers of electronic cigarettes, and with tobacco giant Altria.
However, his appointment comes while the company is in poor shape. Aurora reported several negative business updates:
- The company reported its preliminary results for its fourth quarter and fiscal year ended June 30th, 2020. AGC expects net revenue to be CA$70 million and CA$72 million, a QoQ decline between -7.3% and -4.6%. versus FactSet Consensus of CA$77 million. During the same time period, total legal sales in Canada grew 16% QoQ.
- The company expects to record balance sheet adjustments, including announced fixed asset impairment charges, now expected to be up to CA$90 million, due to production facility rationalization, and a charge of approximately CA$140 million in the carrying value of certain inventory, predominantly trim, in order to align inventory on hand with near term expectations for demand
- The company expects to recognize a tremendous non-cash write-down of goodwill and intangible assets in the range of CA$1.6 to CA$1.8 billion.
- Lastly, the company and the UFC have agreed to mutually terminate their partnership, with Aurora expecting to make a one-time payment of US$30 million to terminate the contract in Q1 2021. The initial eight-year contract was meant to advance clinical research on CBD products and athlete wellness.
The company expects to reach positive Adj. EBITDA by Q2 FY21. The stock dropped close to 12% on yesterday’s news.
Cannabis beverages sales data in Canada for July (CGC, STZ, TAP, HEXO)
According to Headset data, cannabis beverage sales were approximately CA$1.7M for the month of July in Alberta, British Columbia, and Ontario combined. In Alberta, cannabis beverage sales as of August made up 1.6% of the market, a 140 bps increase from January. In British Columbia, July’s cannabis beverage sales had 1.4% of the market, a 130 bps increase from January. In Ontario, July’s cannabis beverage sales had 1.5% of the market, a 130 bps increase from January. For 1H20, edibles (including beverages) had 5.3% share in Alberta, 4.9% in British Columbia, and 4.5% in Ontario.
Alberta’s sales appear to be slowing sequentially. In August, sales grew just 4% MoM, while in July sales had grown 6% MoM. July’s data for British Columbia and Ontario was more positive, growing 39% and 19% MoM, respectively.
Towards the end of the August, the joint venture between Molson Coors and Hexo, Truss Beverage Co., launched its line of non-alcoholic, cannabis-infused beverages across Canada. Their current portfolio consists of five drinks with varying levels of potency, ranging from 2.5 mgs CBD/THC per drink to 10 mgs THC. The cannabis beverage market in Canada is still in early innings, and how the category plays out is especially critical to HEXO and CGC with their deeply invested backer Constellation Brands (STZ).
Columbia Care to acquire California-based Project Cannabis (CCHWF)
Columbia Care Inc. has signed a definitive agreement to purchase Project Cannabis, a cannabis company based in Los Angeles, California, for approximately $57M in Columbia Care stock and approximately $12M in cash from the proceeds of a concurrent sale of Project Cannabis’ real estate assets. The $69M transaction is expected to close in Q4 2020.
Project Cannabis is a cannabis cultivator, wholesaler, and retailer with a 32,000 sq. ft. cultivation facility, four adult-use dispensaries in prime locations in Los Angeles and San Francisco, and a distribution network of more than 100 dispensaries throughout the state. Columbia Care plans on manufacturing and packaging all extracted products and concentrates for Project Cannabis via its new 45,000 sq. ft facility in San Diego. Project Cannabis will continue to sell its entire brand portfolio while simultaneously cross-selling Columbia Care’s products.
The company expects the acquisition to be accretive to Columbia Care’s Adj. EBITDA and cash flow, with its California operations immediately Adj. EBITDA and cash flow positive. They also expect to benefit from operating synergies by bringing in-house the manufacturing of Project Cannabis’ finished goods, including processing and packaging, with an expected impact upon gross margins on targeted SKUs to be approximately +10% to 15%. Excluding revenue and cost synergies, the acquisition multiples ranges of ~1.3x - ~1.4 and ~6.1x - ~6.7x current year (estimated FY 2020) revenue and Adj. EBITDA, respectively.
