Explaining the Recent Uproar About Aurora

By William Sumner, Hemp Content Manager, New Frontier Data

Is Aurora Cannabis (NYSE: ACB) exiting the hemp industry? Some speculators seemed to think so as the company recently divested of some hemp-related assets, though the Canadian cannabis producer seems more intent on repositioning than in full retreat from the hemp space.

Earlier this month, the Edmonton, Alberta-based company announced that it would sell one of its large-scale greenhouses in Exeter, Ontario, for CAD$8.6 million, or around half of the property’s listed price  of CAD$17 million. Late last year, the company sold its remaining stake in The Green Organic Dutchman (TSE: TGOD) for CAD$86.5 million.

As quoted by Hemp Industry Daily, company executives in an earnings call explained that low biomass prices were among the reasons to sell its Exeter property, and that “management does not consider the hemp production and foods business to be core to Aurora’s future.”

While Aurora’s continued divestment from hemp production appeared to some as a pivot from the hemp and CBD market, that is not entirely the case. Like many of its competitors, Aurora is doggedly aiming towards profitability.

By the end of the 2019 fiscal year, Aurora appeared on the cusp of becoming profitable. The company had shrunk its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to a loss of $11.7 million, and its executives seemed confident that profitability was around the corner.

As the outbreak of COVID-19 spread, such optimism was soon dashed, and Aurora’s adjusted EBITDA ballooned to a loss of $80.2 million in the second quarter. Consequently, the company has been looking to even out its balance sheet. Factoring infalling hemp prices, it would seem unsurprising that Aurora would want to sell its high-dollar production facility.

Despite the necessity for shedding some unprofitable assets, Aurora seems nevertheless committed to the hemp-CBD market. Last week the company announced that it would acquire the hemp-CBD brand Reliva for around $40 million in an all-stock purchase. Reliva is considered a top-ranked CBD brand with a retail presence of over 20,000 U.S. locations.

In a separate earnings call, Aurora’s Executive Chairman and Interim CEO Michael Singer said that the hemp-CBD market was “just too big to ignore.”

“Listen; unlike Canada where most of the LPs grew up playing in the entire value chain from cultivation and right through to distribution… We don’t need to do that in the U.S.,” he explained. “Somebody’s pulling back from the market; it may just be part of the value chain that doesn’t necessarily make sense if they’ve learned about the market. And we’ve certainly taken our time to understand that market thoroughly, and understand where we think long-term value can be created there, and you don’t need to play in the whole value chain.”

Thus, rather than abandoning the hemp market, the company is purportedly reconsidering its involvement throughout the entire hemp supply chain. Given the oversupply of biomass, other brands may follow Aurora’s lead and simply opt to purchase CBD instead of extending expensive investments in hemp production.