Where Will Aurora Cannabis And Hexo Corp. Be A Year From Now?

During the last year, the landscape of the Canadian cannabis industry has changed and valuations across the board have plunged (despite the opening of the cannabis 2.0 market). The speed of the decline is similar to that of the rally of the Canadian cannabis sector in 2018, and we believe that our readers need to be aware of the transition.

At the height of the Canadian cannabis industry, the 3 largest Canadian cannabis companies had a combined market cap of $50+ billion. For an industry that was generating less than $100 million of revenue, valuations were frothy and the expectations associated with the operators were not realistic.

Although we expect there to be a few winners in the Canadian cannabis market, most businesses will fail. Some of the operators that we believe could fail are considered to be industry leaders and this is a scary thought since the businesses have been able to raise more than $1 billion in aggregate.

Today, we want to highlight two Canadian cannabis producers that have not lived up to expectations. Although these high-profile operators have been able to raise several hundred million dollars, the businesses have failed to execute on major growth initiatives and have completed some acquisitions that were extremely overvalued.

Canadian cannabis producers Aurora Cannabis Inc. (ACB.TO) (ACB) and HEXO Corporation (HEXO.TO) (HEXO) are the businesses in question and we will explain why these companies may be in trouble in the near future.

Aurora Cannabis: A Hard Fall From Grace

Although Aurora Cannabis was once considered to be the main challenger to Canopy Growth (WEED.TO) (CGC), a lot has changed in the last two years and Aurora Cannabis is no longer considered to be a challenger to lower-profile Canadian cannabis producers.

There are a number of reasons that could explain the downfall of Aurora Cannabis, and we want to highlight these below:

  1. Acquired CanniMed and MedReleaf for more than $7 billion (cash and stock) at the height of the market (from a valuation standpoint)
  2. Spent hundreds of millions of dollars to construct massive state-of-the-art cultivation facilities in Canada that were shut down in 2020 due to a supply-demand imbalance in Canada and abroad
  3. The European investments have not been the revenue generators that they were expected to be and Aurora also closed some of its facilities in Europe
  4. The leverage to the Latin American market has not paid off as anticipated and the acquisition of Uruguay-based ICC Labs was completed for a large premium
  5. From a balance sheet standpoint, Aurora Cannabis is not the company it once was and has been forced to take on debt capital. Previously, Aurora had no problem with raising capital by selling equity. In the future, the company will need to pay off the loan and the interest associated with it which could prove to be a challenge
  6. Many of the executives who played a key role in turning Aurora into a multi-national operator from a small scale cannabis producer have left the company, and we have a lower conviction level in the current team
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Disclosure: This report was authored by and is property of Technical420. All information and data relied upon in drafting this report is publicly available. The author believes and considers its ...

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