Aurora Cannabis Inc. CEO Terry Booth is stepping down and the company is laying off hundreds of employees, as the grower struggles to stabilize its balance sheet in another sign of the reversal in the fortunes of the Canadian cannabis industry.
The layoffs will eliminate 500 full-time equivalent staff, including 25 per cent of corporate positions. The company also announced on Thursday that it expects to take a $740-million to $775-million writedown on goodwill, and an impairment charge of between $190-million and $225-million. The moves are being done “to rationalize the cost structure and balance sheet going forward,” the company said in a statement.
Mr. Booth has led Aurora since 2013, overseeing the Edmonton-based company’s stunning transition, through a series of acquisitions, into Canada’s second largest cannabis company by sales and third largest by market capitalization.
Over the past year, however, Aurora has struggled to live up to the expectations it set in the lead-up to the legalization of recreational marijuana. Sales growth has faltered, and the company continues to burn through cash at a rapid rate. In November, it announced that it was stopping construction on two new facilities, including a 1.6-million-square-foot growing operation in Medicine Hat.
The company’s share price is more than 80 per cent off its peak reached in October, 2018. The shares were down around 11 per cent in after-hours trading on the New York Stock Exchange after Thursday’s news release after markets closed.
Aurora’s executive chairman Michael Singer is replacing Mr. Booth as interim CEO, effective immediately, the company said. It is also appointing two new independent directors to its board. Mr. Booth will remain a member of Aurora’s board of directors, and will become a strategic adviser to the board, the company said.
“While there is still much work to be done, the timing is right to announce my retirement with a thoughtful succession plan in place and the immediate expansion of the Board of Directors,” Mr. Booth said in a statement.
Mr. Booth is the latest in a string of CEO departures in the cannabis sector. Bruce Linton, the long-time head of Canopy Growth Corp. and the most prominent figure in the industry, was forced out last July. At least five other CEOs have stepped down in the past month, including the heads of MedMen Enterprises Inc., Sundial Growers Inc. and the Supreme Cannabis Company Inc. Mr. Booth’s most prominent lieutenant, Cam Battley, was also fired in December.
The entire industry is going through a transition period, as boards of directors replace company founders and entrepreneurs with professional managers.
Very few licensed cannabis producers are profitable, and the legal industry is struggling to win over consumers from the black market. Meanwhile, margins are being compressed as more licensed production comes online, driving cannabis prices down.
Aurora now expects to report a sequential quarterly revenue drop of more than 20 per cent when it publishes earnings next month. This drop is due to a $12-million charge for expected product returns, as well as “a decrease in international revenues due to short-term German supply interruptions, and much lower bulk sales,” the company said.
That’s on top of a 24-per-cent sequential drop in sales that Aurora reported last quarter.
As of Dec. 31, the company had a consolidated cash position of $156-million, with an additional $200-million still available via a share-issuance program that lets it sell stock at market price. Aurora’s cash burn in operations was $95-million last quarter.
To comply with creditor demands, Aurora has renegotiated its loans, reducing the size of its credit facility by $141.5-million and introducing a new “minimum liquidity covenant” of $35-million, it said.
Mr. Booth, an electrician by training who ran a construction permitting and inspection business, entered the cannabis industry in 2013. He and his business partner Steven Dobler, Aurora’s president, invested $3-million each in a small medical cannabis operation in Cremona, Alta., called Releaf. The pair renamed the company Aurora Cannabis Inc. and began expanding the business after the Liberal government came to power in 2015 with promises of legalizing recreational cannabis.
Under Mr. Booth’s leadership, Aurora emerged as the most aggressive company in the Canadian cannabis space. In the fall of 2017, it launched a hostile takeover bid for CanniMed Therapeutics Inc., which it acquired in early 2018 for a record $1.2-billion. This was followed by an even larger transaction several months later, when Aurora bought MedReleaf Corp. for $3.2-billion.
Aurora also expanded abroad, acquiring assets in South America and Denmark as part of an effort to become a global leader in medical cannabis. These are “predominantly” the assets that are being written down, said Aurora chief financial officer Glen Ibbott, “as our estimate of the timeline for substantial growth extends in those markets.” The company said that there are no writedowns for its core Canadian assets.