Weeks after starting the top job at Aurora Cannabis (ACB.TO) (ACB), Miguel Martin announced a bold new strategy to drive the troubled Edmonton producer towards profitability: Sell more “premium and super” Premium “pot products that score higher margins. Let Aurora’s rivals focus on the cheaper weed that is growing in popularity with consumers.
Martin shared his years of experience with consumer products in the tobacco industry and told analysts on his first earnings call as CEO in September 2020 that overall market share was a poor measure of profitability. If it reaches out to consumers willing to pay more for Aurora’s upscale San Rafael ’71 and Whistler cannabis brands, the company would make a profit in the second fiscal quarter of 2021.
So far it has not gone as planned. In its final quarter, the third fiscal period of 2021, Aurora moved further away from making a profit, posting adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $ 24 million.
In a phone interview with Yahoo Finance Canada, Martin said the challenging quarter was the result of a number of factors, including tougher competition in Canada’s recreational market that was offset by the company’s once-massive non-medical sales. The reason his planned move to premium didn’t come to the rescue is largely due to COVID-19.
“COVID hurt us,” said Martin, who was unable to travel to Canada from where he lives in the US due to the border closure. “It has had a significant impact.”
The pandemic has caused a number of headaches for the cannabis industry as a whole. In April, Aphria CEO Irwin Simon complained that lockdowns resulted in smaller orders from wholesalers in the provinces buying the pots to sell in the retail market. In May, BNN Bloomberg confirmed it was in Ontario, Canada’s most populous province.
The story goes on
According to Martin, provincial buyers have also changed the way they deal with new product lists.
“It used to be that if you had a new concentrate or edible or whatever you said you could get it. It would have to be sold at a certain threshold, but you could get it in. We all figured that out somehow. ” he said. “This process has changed. In some cases, the provinces only accept 20 to 25 percent of the innovations presented.”
These challenges were felt across the industry, but timing was especially bad for Aurora. The company recently spent millions increasing the potency and overall quality of its cannabis, and attracting more discerning buyers. It also removed a lower quality pot that it had grown from its inventory, which cost $ 3.2 million. To make matters worse, Martin says, consumers are less likely to try new pot products when buying through click-and-collect or delivery. In many countries these are the only sales options for several months.
He views the COVID-related headwinds as a temporary, albeit serious, problem. He notices the excitement he hears from retail and social media budget tenders, which suggest that the product changes he made have been well received.
Not everyone supported Martin’s plan. Bill Kirk, Executive Director at MKM Partners, questioned the success of the strategy when it was first announced.
“We believe Aurora’s attempt to re-award its portfolio will be difficult given the industry’s inventory levels and lack of mainstream pricing power,” he wrote in a research report last September.
At Aurora’s latest earnings call, analysts asked Martin and his executive team specific questions about the company’s dwindling market share in the leisure space, the uncertain path to profitability, and overall poor financial performance. Some retail investors feeling burned by the once soaring pot company have been speaking out on social media consistently.
Martin is confident that his profitability plan is on the right track. The company announced last week that it is targeting between $ 60 million and $ 80 million annually over the next 12 to 18 months. This will allow the company to generate positive Adjusted EBITDA without relying on revenue growth and stronger margins.
Martin remains optimistic about Aurora’s future, but also sympathizes with those who lost money on his company’s stock. Toronto-listed stocks have fallen more than 95 percent since their peak in October 2018, the month that Canada became the first G7 country to legalize recreational cannabis.
“Especially for long-term investors, I understand what the [company’s] The original thesis was where the stock was trading and where the company’s market cap was. I understand that. I really respect that, “said Martin.” We do all we can with your best interests in heart. “
Jeff Lagerquist is a Senior Reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
Download the Yahoo Finance app, available for Apple and Android.