Want to Lose $1.8 Billion? Invest in Aurora Cannabis Stock
ACB) announced a potentially massive 1.8 billion CAD ($1.37 billion) write-down for Q4. Simultaneously, the Canadian marijuana company announced it has chosen a new CEO, its Chief Commercial Officer Miguel Martin. The market reacted with shock, sending ACB stock down 12% before recovering.” data-reactid=”12″>On Tuesday, Aurora Cannabis (NYSE:ACB) announced a potentially massive 1.8 billion CAD ($1.37 billion) write-down for Q4. Simultaneously, the Canadian marijuana company announced it has chosen a new CEO, its Chief Commercial Officer Miguel Martin. The market reacted with shock, sending ACB stock down 12% before recovering.
HPQ) famously did that in 2012 when they fired CEO Leo Apotheker while writing off $8.8 billion on its failed Autonomy acquisition. It cleans the slate for the new CEO.” data-reactid=”39″>When struggling companies need to offload past bad decisions, they throw the old CEO under the bus. Hewlett Packard (NYSE:HPQ) famously did that in 2012 when they fired CEO Leo Apotheker while writing off $8.8 billion on its failed Autonomy acquisition. It cleans the slate for the new CEO.
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Aurora Cannabis, however, will need far more than blame-shifting to survive. Here’s what Aurora stock investors need from the next CEO.
ACB Stock: The Weakest Link in the Promising Cannabis Industry
Readers will know that I have long eyed the legal cannabis industry. Americans spend almost as much on marijuana as they do on tobacco products, and federal legalization will open the floodgates to legitimate profits.
overinvested in cultivation while ignoring marketing and sales. There was an implicit assumption that “street” weed had terrible quality; once Aurora created better-quality strains, users would immediately switch over.
They were totally wrong.
competitive in quality. Their multi-level distribution network also kept costs relatively low. Legacy growers, after all, had competed against each other for decades.
Read more about Aurora’s troubles here.” data-reactid=”50″>Today, Aurora now produces three times more weed than it can sell and burns through almost 800 million CAD a year. Its 1.8 billion CAD write-off simply represents the legally required recognition of past failed investments. Read more about Aurora’s troubles here.
I’ve warned of such poor business planning in the past — just because you’re in a growth industry doesn’t guarantee success.
So how can the new CEO turn Aurora Cannabis around?
ACB Needs to Look like Juul to Succeed …
… and that’s not a good thing.
640% that year and 800% the next. Nicotine pods in hundreds of flavors popped up from grocery stores to gas stations almost overnight. And young smokers started to get hooked.
$1 billion of vapes and pods annually, reaching a $38 billion valuation. And by 2019, 27.5% of all high school students reported vaping to some extent.
If Aurora wants to regain its $15.7 billion enterprise value, CEO Martin will have to follow a similar path: marketing cheap, mass-market THC products for a new generation of smokers.
Aurora Stock Needs a Cheaper High
routinely target youth to inspire a new generation of devotees, running ads even during college sports games.
gave away free cigarettes in the 70s through the 90s to promote their brand (and get new smokers addicted).
In other words, the value of “vice” companies isn’t in production or taking market share. It’s in marketing to a new audience.
Can ACB’s New CEO Navigate the Cannabis Minefield?
Successful “vice” companies need to live with massive public scrutiny.
banned most flavored nicotine pods, sending Juul’s market value tumbling to $12 billion.
Yet, if CEO Martin wants to turn ACB into a multi-billion-dollar business, his best bet would be this:
510 thread format devices. There’s no need to fight legacy growers in traditional cultivation when you can leverage your size to create an entirely different product.
Secondly, create an aggressive two-pronged marketing plan aimed at 1) converting existing joint smokers and 2) ethically acquiring new users looking for a safe way to experiment.
“Smoking wet,” or consuming tainted marijuana, has long been a problem in the illegal cannabis industry — legal makers need to prove they can do better for society.
What’s Next for ACB Stock?
If Miguel Martin can achieve these three mileposts, ACB will reward stock holders with 10x-30x returns. Few companies have ACB’s massive potential.
But if Martin fails at any of the three mileposts … then what better way to lose another $1.8 billion?
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