Aurora ceases construction, at least for now

By COLLIN GALLANT on November 15, 2019.

cgallant@medicinehatnews.com@CollinGallant

Aurora Cannabis is putting the brakes on finishing the entire Aurora Sun complex in Medicine Hat and now says only one-sixth of the massive cannabis greenhouse will be operating next year.

That announcement came late Thursday as the company released a new strategy to investors to deal with lower revenue than expected and a need to save cash ahead of debt financing coming due next year.

CEO Terry Booth said in a release that pausing final construction would “better match near-term capacity expansion with anticipated demand, while maintaining our long-term demand outlook.”

Despite “headwinds” in the Canadian marketplace, Aurora states in the release, it believes the potential in the global sector is “immense … as global demand develops, or as Aurora’s market share in the global cannabis market increases, we will reactivate these projects.”

In Medicine Hat, the decision means the company expects that of the planned 1.6-million-square-foot facility, only 238,000 square feet (described as six growing rooms) would be commissioned in 2020.

That building in the Box Springs Business Park, which has been under construction for 18 months, is “fully enclosed,” meaning interior work can proceed. The company’s stated plan is to licence and commission sections of the interior as they are completed.

There was no initial indication of how employment needs, stated to be 450 workers at full operation, might be affected by the news that was released after the stock market closed on Thursday.

Senior officials at the City of Medicine Hat, which sought out cannabis producers in an economic development program, did not return calls for comment late Thursday.

Aurora will also halt construction on the second phase of a 100,000 square-foot facility in Denmark, thereby deferring $90 million in construction spending, and the pause in Medicine Hat involves deferring another $110 million in expected construction costs.

That amount is close to the initial estimates to build the the highly automated greenhouse when it was headline-bursting news in April 2018 when it was announced at city council meeting.

Originally to be a 1.2 million square foot growing and processing facility, the company announced on a media tour last spring that it had grown to 1.6 million-square feet to benefit from scaling up production.

The company again this week touted its position as a low-cost producer with a global network ready to scale up and assume a large share of market demand.

At full production, Aurora Sun was slated to have a capacity of about 260,000 kilograms of dried cannabis per year. The company currently operates another huge facility known as Aurora Sky, near Leduc. The firm’s current production capacity is stated as 150,000 kilograms per year combined between Sky and a number of smaller facilities.

Financing

Cannabis companies have depended on raising money in the fast-expanding sector by offering convertible debentures, which are attached to a stock price the holder can convert to shares when payments are due. That provides some flexibility and potential upside to investors.

Aurora states that such debentures due in March 2020 have conversion prices above $13 per share. The stock was trading at about $5 this week prior to Thursday’s announcement, meaning debt holders are unlikely to takes shares in place of payment.

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