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Why Aurora Cannabis Is Getting Hammered Today

By George Budwell - Feb 7, 2020 at 9:57AM

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Aurora's embattled CEO Terry Booth plans to step down.

What happened

Shares of Aurora Cannabis (ACB -38.46%) are printing fresh multiyear lows in premarket trading this morning. Specifically, the cannabis giant's stock dropped by as much as 17% in premarket activity Friday morning in response to the news that longtime CEO Terry Booth will step down. Making matters worse, Aurora also announced a broad cost-cutting plan revolving around job cuts and the revaluation of certain assets acquired during the company's recent expansion phase.

So what

Not even a year and a half ago, Aurora was approaching large-cap status. It had the largest projected production capacity by a country mile, as well as one of the broadest global footprints in the nascent cannabis industry. Then everything fell apart. Booth's hyperaggressive growth-by-acquisition strategy flat-out backfired. Canada's legal cannabis industry simply couldn't overcome the entrenched competition from illicit sales, and the global march toward widespread legalization never made the kinds of gains many anticipated two years ago.

A red exclamation mark on a wooden floor, leaning up against a concrete wall.

Image Source: Getty Images.

The United States, for instance, isn't any closer to legalizing cannabis at the federal level than it was back in 2018. As a result, Booth's serial acquisition strategy slowly but surely morphed into a boondoggle, putting the company in serious financial peril. Aurora, in fact, is facing a cash crunch right now, necessitating steep cuts to both its workforce and its production capacity.

Now what

Is Aurora's stock a contrarian buy? At this point, investors probably want to stick to the safety of the sidelines. A new management team could facilitate a turnaround. But there's no guarantee at this stage. Aurora expanded too quickly, wasted far too much capital, and is now struggling simply to remain in the game. That's not an attractive set of circumstances for potential investors. Moreover, there are other beaten-down pot stocks that arguably offer a far more compelling risk-to-reward ratio.

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