Aurora (TSX:ACB) Stock Posts a Huge $1.8 Billion Writedown in Q4

With the cannabis bubble no more, Aurora Cannabis could finally see some good news in the form of a record writedown by its next quarter.

| More on:
Marijuana plant and cannabis oil bottles isolated

Image source: Getty Images

The Canadian cannabis sector has had a few very tough years. There is a severe lack of a recognizable brand in the business, too much dried marijuana without the market to match demand, supply chain problems, boardroom scandals, and much more have decimated billions in market value for the legal cannabis industry.

Amid all this, Edmonton-based Aurora Cannabis (TSX:ACB)(NYSE:ACB) has been a leading company in the industry. It has also taken a brunt of the damage from all the problems in the sector. It seems that there is now a chance for the company to see a massive rebound.

Outlook for the legal weed sector

The cannabis sector had several issues to begin with. However, shareholders have managed to resolve many of the problems in the industry. The companies now have better management teams to provide improved oversight after shareholders pushed out the old regime. The price for legal recreational marijuana has significantly gone down to compete with the black market price per ounce.

The significant surge in demand for marijuana over the past several months resolved much of the oversupply issues. Between February and March 2020, cannabis use increased by almost 20%. Adult users turned to cannabis as economies shut down, and they were limited to their homes. The increased demand could speed up the Cannabis 2.0 product rollout.

Aurora Cannabis

At writing, Aurora Cannabis is trading for $9.76 per share. The stock has lost more than 94% of its value from its all-time high in 2018. With deeply discounted shares, some investors might have expected people to be grabbing all the shares they could. However, pot stocks are not in the news anymore, and people don’t seem that interested.

It is possible to consider ACB in oversold territory. The company’s price-to-book ratio is 0.27, while its price is $9.76 per share. Its debt-to-equity ratio is 15.20%. The stock looks like it is in sound enough financial shape to survive several years until it can gain traction.

The new writedown

Aurora Cannabis also warned that it expects to record a record writedown estimated between $1.6 billion to $1.8 billion. The company’s head of U.S. operations, Miguel Martin, was promoted to CEO and is the man in charge to lead Aurora through the massive writedown. The company expected the writedown of up to $1.8 billion of goodwill and intangible assets when it reports its Q4 2020 results on September 22, 2020.

The company expects revenue for the next quarter to be between $70 million and $72 million — a decline from the previous quarter’s $75.5 million earnings. The company also announced the end of the deal it made with UFC to collaborate on multiple CBD products. Ending the contract will cost ACB US$30 million.

Foolish takeaway

With Miguel Martin as the new CEO for the company, Aurora Cannabis plans to focus on providing high-margin and premium-quality products to the market. It recognizes the lack of competition in the premium segment in Canada’s recreational marijuana market. ACB has the right infrastructure to fill the demand.

Whether all this means that ACB will climb back to its 2018 highs is unlikely. However, I think it is a precursor for much better times in the legal cannabis industry. Barring another major stock market crash, ACB could be on its way up.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned.

More on Dividend Stocks

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Royalty: 3 Fabulous Stocks to Buy Now for Decades of Passive Income

Rogers Communications stock and Canadian Natural Resources stock could pay you dividends for decades to come.

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »

Dividend Stocks

The Top Canadian REITs to Buy in April 2024

For growth and dividends this April, look to these two REITs that have quite the promising present as well as…

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »