Aurora Cannabis halts construction on Medicine Hat facility – CTV News

Aurora Cannabis halts construction on Medicine Hat facility - CTV News
Aurora shares sink on weak results and halting construction of cannabis plants
Cannabis seedlings are shown at the new Aurora Cannabis facility, Friday, November 24, 2017 in Montreal. (THE CANADIAN PRESS / Ryan Remiorz)

CALGARY – Edmonton-based Aurora Cannabis announced plans to halt construction on two of its large-scale facilities, including one in Medicine Hat, after revenues failed to meet expectations.

The company shared the news in its quarterly report where it reported $10.4 million in net income for the quarter ending Sept. 30.

“That is something that we’ve seen across licensed producers and it seems to be associated with the fact that province’s loaded up on inventory and they have to work through that,” said Cam Battley, Aurora Cannabis’ chief corporate officer, on Friday.

Back in April, Aurora Cannabis said it planned to expand the building to 1.62 million square feet, a full third larger than originally planned.

“I think this is an opportunity to discuss this with the provincial government and I think it would be a friendly discussion, but we certainly hope there will be an opportunity to revisit that decision because we absolutely are in the business of agriculture.”

Now, the company says it expects to have at least six flower rooms at Aurora Sun next year in 238,000 square feet of space.

Aurora Cannabis is also hitting the brakes on the construction of its Nordic 2 facility in Denmark. Battley said it will be more clear in the new year on when they might flip the switch to start construction again, once they see what the retail landscape looks like.

The company says it made the change to streamline its operations "in response to a changing market and regulatory environment."

"Furthermore, the Company has decided to defer the majority of the final construction and commissioning activities at its Aurora Sun facility for the foreseeable future which is expected to conserve approximately $110 million of cash. With the work completed to date, both the Aurora Nordic 2 and Aurora Sun facilities are now fully enclosed," Aurora stated in a release.

Aurora Cannabis Inc.’s latest financial results show the company’s revenue has declined nearly $20 million compared to the previous quarter and, in an effort to limit costs, it is hitting the pause button on a facility in southern Alberta.

It would also be ceasing construction on its Aurora Nordic 2 facility in Denmark in order to save $80 million over the next 12 months.

Aurora Cannabis also operates a 55,000-square-foot facility near Cremona, Alta. and the worlds largest facility, known as Aurora Sky, near the Edmonton International Airport.

Battley also responded to the announcement this week from Municipal Affairs Minister Kaycee Madu who said towns, counties and other municipalities will be allowed to charge cannabis growers commercial property tax rates in 2020.

An eight-year-old purebred Black Angus cow has been sold at an Alberta auction this week for $140,000, a price more associated with a Tesla than a cow.

Aurora Cannabis Inc. shares sank to a two-year low Friday after its revenues missed expectations and the pot producer announced it was halting construction at one production facility and pausing work at another to save more than $190 million in planned expenses.

The Edmonton-based cannabis producer says it will immediately cease construction of its Aurora Nordic 2 facility in Denmark to save about $80 million over the next year, as well as indefinitely defer completion of construction and commissioning at its Aurora Sun facility in Alberta to conserve $110 million.

The Edmonton-based company’s shares fell to a low of $3.57 and closed down 79 cents or 18 per cent to $3.59 in trading on the Toronto Stock Exchange.

Aurora announced after markets closed on Thursday that it will immediately cease construction of its Aurora Nordic 2 facility in Denmark to save about $80 million over the next year, as well as indefinitely defer completion of construction and commissioning at its Aurora Sun facility in Alberta to conserve $110 million.

The construction halts come as the company reported net income of $10.4 million for the quarter ending Sept. 30, compared with net income of $104.2 million for the same quarter last year.

“We’re making sound decisions in reducing capex based on global demand,” founder and CEO Terry Booth said during a conference call.

Aurora says it produced 41,436 kilograms in the quarter, up from 29,034 in the last quarter. It will consider restarting development at the two facilities as demand develops.

The company said it is adjusting the construction timeline for both facilities to more closely align with its expectations for the timing of increasing Canadian and international demand.

“The past few months have been challenging for the broader cannabis industry between issues of governance, evolving consumer demand and provincial retail bottlenecks, there’s been no shortage of negative news,” added chief corporate officer Cameron Battley.

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“That said, I want to reiterate that our view of the opportunity in the Canadian and global cannabis industry is still extremely robust. It’s important to remind ourselves that the Canadian consumer market is just over a year old. These issues will take a little time to resolve. But in the end, we’ll be a stronger business because of it.”

“Aurora Sun remains an important part of our future outlook for the production of high-quality cannabis,” Michelle Lefler, vice president of communications, said. “There has been no halt to construction at the facility. We are continuing to build with adjusted timelines that are more closely aligned with how cannabis markets develop.

“We expect to have at least six flower rooms completed and in operation in 2020, for a total of 238,000 square feet, which includes the mother room. As was done with Aurora Sky and is the case with all Sky-Class facilities, we will pursue a phased approach to bringing additional grow rooms online, and still intend to build 30 grow rooms at Sun.

“Additional operations at the facility will be activated as global demand develops, with a target date for full operations in 2021. Previously, we had intended to build at an accelerated speed. This is a more normalized pace for a project of this size and is aligned with how markets are growing.

“We remain committed to investment in the Medicine Hat community as planned. At this time, we still intend to hire a final staff complement of around 800 people upon facility completion. We want to make sure that all local and government partners continue to work with us to support our commitments to significant investment in Alberta’s economy.”

The construction decisions come as the company reported net income of $10.4 million for the quarter ending Sept. 30, compared with net income of $104.2 million for the same quarter last year.

Aurora missed expectations as its adjusted earnings before interest, depreciation and amortization (EBITDA) was negative $39.7 million for its first quarter of fiscal 2020. That compared with a loss of $67.6 million a year earlier and a loss of $11.7 million the fourth quarter ended in June.

Revenues were $75.3 million in the first quarter, up from $29.7 million for the same quarter last year, but down from the $94.6 million in the prior quarter.

Analysts had expected adjusted EBITDA loss of $18.6 million and revenue of $93.31 million, according to financial markets data firm Refinitiv.

While medical marijuana sales grew three per cent from the fourth quarter as the number of patients hit a record 91,000, consumer cannabis sales dropped 33 per cent on slowing demand from provinces as they work through high inventory levels.

Analyst John Chu of Desjardins Capital Markets slashed his target price for Aurora by more than half to $6.50 per share after cutting his sales and EBITDA forecasts following Aurora’s release of its first-quarter results.

“We still believe there remains tremendous growth in the sector and have maintained similar year-over-year sales growth rate estimates for our fiscal year 2021-2023 forecast periods, but operating off a lower base following the soft first quarter results,” he wrote in a report, adding that he’s maintaining his buy rating.

“Aurora is generating industry-leading gross margins, improving cost per gram and has award-winning strains that should continue to resonate with consumers.”

Despite some of the negative results, Battley said its cash cost to produce fell 25 per cent to 85 cents per gram, the average net selling price per gram was up seven per cent, kilograms produced climbed 43 per cent to 41,436 kilograms and its gross margin was stable at 58 per cent “which is head and shoulders above our peers.”

Based on these returns, Aurora says it would need to generate $130 million of revenue to become profitable, less than half the total that would be required by a comparable company earning lower margins.

The company said it is preparing to supply new products, referred to as Cannabis 2.0, that have recently become legal that it says will help to reduce the illegal market.

“I’m excited as hell about 2.0,” said Booth. ”I know I’m supposed to be told be conservative, Terry, but I really am pumped about how Aurora has done its job and getting ready for 2.0. And all indicators from our retailers, from our provinces, from Health Canada and all the little hints that you hear says that Aurora is at the top of that pack as well. So we’re pretty pumped.”