Aurora Greenhouse Sale Implies Massive Writedowns, MKM Says

(Bloomberg) -- Aurora Cannabis Inc. has listed its greenhouse in Exeter, Ontario, for sale for C$17 million, a move that one analyst said “implies massive writedowns” are coming.

A listing on Cushman & Wakefield’s website advertises the 22-acre greenhouse that Aurora obtained as part of its C$3.2 billion acquisition of MedReleaf Corp. in 2018.

“This listing, for 75% of former MedReleaf’s capacity, signals major writedowns ahead,” MKM Partners analyst Bill Kirk said in a note published Monday. “We are also discouraged with the visibility of Aurora’s strategy -- investors were unaware Aurora was trying to sell Exeter,” despite a corporate update on Dec. 23. That same day, Aurora said Chief Corporate Officer Cam Battley would depart.

Aurora determined that the greenhouse would have required “retrofit and significant capital investment in order to meet Aurora’s production standards,” company spokeswoman Michelle Lefler said in an emailed statement Monday. “Aurora has taken decisive steps to rationalize capital expenditures and align our cultivation footprint to current demand, including selling the Exeter facility.”

Kirk said he expects the company to record C$2 billion worth of writedowns. Aurora’s market value was C$2.8 billion at Friday’s close and the company had C$3.9 billion of goodwill and intangibles on its balance sheet. “We believe more divestitures are likely, as Aurora has a major cash problem, and this listing only covers about two weeks of cash burn,” he added.

The company mentioned the Exeter greenhouse in its 2018 annual report, citing 105,000 kilograms per year of cultivation capacity. However, it wasn’t mentioned in its 2019 annual report and hasn’t been mentioned in any press releases since the MedReleaf deal closed.

“As far as we can tell, the facility was never licensed, and no product was ever sold from Exeter,” said Kirk, who rates Aurora a sell with a C$2 price target.

Aurora fell as much as 5.4% Monday to C$2.46. Shares are down 65% over the past 12 months.

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