By Ciara Linnane, MarketWatch
Aurora Cannabis Inc.’s U.S.-listed shares slid 8% Monday, after the company announced the exit of a key executive, amid insiders selling stakes, dilutive financing moves and questions about the company’s path to profitability.
The Canadian company, which is the most widely held stock /zigman2/quotes/210559470/composite ACB +4.21% /zigman2/quotes/203734337/delayed CA:ACB +2.49% on trading platform Robinhood, said late Saturday that Cam Battley, its chief commercial officer and the man widely viewed as the face of the company, was leaving. Battley had been with Aurora since 2016 and will remain on the board of MedReleaf Australia, a private cannabis company in which Aurora owns a stake.
Jefferies downgraded the stock to hold from buy following the news.
“It is clear to us that the market is lacking conviction in Aurora, and this update will do little to help that,” Jefferies analyst Owen Bennett wrote in a note to clients as he lowered his stock price target to C$3.00 ($2.28) from C$7.00.
Aurora shares have lost 24% of their value in the past month, battered by negative sell-side reports, a controversial convertible bond exchange that was highly dilutive for shareholders and news that Director Jason Dyck had sold more than 1 million of his shares, equal to 57% of his holdings.
But for Bennett, the key issue is one of trust. Aurora has repeatedly failed to meet its own targets and has promised one course of action, before immediately choosing another, he said.
“Key examples are missing revenue guidance despite issuing it after quarter-end at Q4, still little visibility on near-term profitability despite promises since January and throughout 2019 this would happen by Q4, continued dilution (debenture conversion, ATM used) despite reassurances this would not be the case, announcement of ceasing facility constructions just weeks after a press release praising their progression, and most recently the embarrassment of having to freeze sales in Germany over an investigation into the company’s processing methods,” the analyst wrote.
“Against this backdrop, we believe it is easy to make the case that Battley is ‘jumping ship’ with potential further bad news on the way and it is also now one thing too many for our previous conviction.”
MKM analyst Bill Kirk noted it’s the third major management shake-up in the new cannabis sector in a year, coming after Canopy Growth Corp.’s /zigman2/quotes/200603886/composite CGC +3.68% /zigman2/quotes/202205609/delayed CA:WEED +2.96% Bruce Linton was ousted and Aphria Inc.’s /zigman2/quotes/207425803/composite APHA +5.31% /zigman2/quotes/205566616/delayed CA:APHA +4.72% former CEO Vic Neufeld was forced to step down. Battley was one of the strongest voices for the industry, said Kirk.
“The sudden departure, during a period of insider selling, dwindling cash to cover payables, and sector turmoil does not send a strong message to investors,” he wrote, as he cut his stock price target to C$2.00 from C$3.00 and reiterated a sell rating.
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Kirk is expecting profitability for cannabis growers to get worse before it gets better, with pricing falling and supply gradually improving. The Canadian sector has had a rocky rollout with red tape hampering the creation of a network of retail stores that has allowed the black market to thrive.
“With legal price gaps widening versus the illicit channel, we believe growth and addressable market opportunities are smaller than others believe,” the analyst wrote. “Further, an outsized (relative to peers) exposure to medical marijuana limits the growth opportunity as most medical markets (Canada, various U.S. states) show flat to declining medical consumption.”
Aurora shares have fallen 59% in 2019, while the ETFMG Alternative Harvest ETF /zigman2/quotes/204332491/composite MJ +2.38% has declined 30% and the Horizons Marijuana Life Sciences ETF /zigman2/quotes/208856346/delayed CA:HMMJ +1.96% has shed 39% of its value.