The investors of Aurora Cannabis (NASDAQ:ACB) stock have been unimpressed by the pot company for quite some time now. ACB has been unprofitable and delivered results below expectations repeatedly in three of the last four quarters. ACB stock has declined 62% since the last year and is trading 68.5% below its 52-weeks high.
A series of unsuccessful acquisitions has overleveraged the company’s balance sheet and weighed down its top-line and bottom-line growth. As such management instigated cost curtailment initiatives to spur operating margins by shutting down some larger loss generating facilities. These efforts have stemmed earnings before interest, taxes, depreciation, and amortization (EBITDA) loss, which was $9 million in the second quarter of fiscal 2022. This is down from a loss of $80 million reported in Q2 fiscal 2020.
Total cost savings achieved from the initiative amounted to $60 million. This number is likely to reach $80 million by the first half of fiscal 2023.
The company’s, revenues however remain depressed, despite the operating costs and margins showings signs of improvement.
Management, in an effort to support growth, announced that it will acquire TerraFarma for $38 million. This will give ACB control of TerraFarma’s lucrative Thrive Cannabis brand. The deal is should close by the end of fiscal 2022. The transaction will strengthen the company’s capabilities in the Canadian markets and provide access to TerraFarma’s award-winning innovative premium products. These include dried flower, pre-rolls, vapor products and concentrates.
Aurora expects cost efficiencies gained from the acquisition should led to positive EBITDA by H1 fiscal 2023.
In addition to this, the marijuana industry is awaiting complete legalization of cannabis across the United States. Aurora should benefit from the industry tailwinds.
The pending acquisition of TerraFarma will strengthen the company’s footprints in Canada. It shall also better position ACB to cater to the larger market of the United States.
Declining ACB stock price has presented opportunities for long-term investment in the industry. The stock price should skyrocket.
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On the date of publication, Sakshi Agarwalla did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
