Earlier this week, it was reported that Aurora Cannabis Inc. (ACB: TSX) (ACB: NYSE) will be shuttering some of its European operations in an effort to consolidate its presence in the European Union (EU). The decision is due to lower-than-expected demand for cannabis in the continent and this is a development that caught us by surprise.
During the last two years, Aurora Cannabis put a major emphasis on the EU market and acquired several assets that are based in different countries. The company plans to close its offices in Portugal, Spain, and Italy and will lay off a good portion of its European workforce. As part of the strategy, Aurora Cannabis will shift its European cannabis production to its Denmark facility and will acquire the remaining 49% of the Danish business.
As part of its restructuring, Aurora appointed Mads Ulrik Pedersen as president of the entire European business. He was previously the head of the company’s Danish operations and expect the transition to be relatively smooth. We will monitor how Mads is able to execute on the restructuring and consolidation plan and believe that he has his work cut out for him.
Although Aurora Cannabis reported plans to shut down the Italian operation, it will continue to service the market since and live up to the terms of a previously announced two-year supply agreement to provide at least 400 kilograms of medical cannabis per year.
Aurora Cannabis no longer has the financial flexibility to operate in 20+ countries. Currently, the costs that are associated with managing international operations significantly outweighs the benefits and we believe that Aurora Cannabis was too early of a mover on the market. The company tried to expand faster than the entire EU market and it is paying the price for these decisions.
2020 has been a challenging year for the Canadian cannabis company and these closures are part of a company-wide restructuring effort which has resulted in Aurora Cannabis recognizing a $1-billion write-down of assets. Going forward, the name of the game for Aurora Cannabis is execution and this is an opportunity that we will continue to closely follow.
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