David George-Cosh

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Aurora Cannabis Inc. announced Tuesday it is closing five of its production facilities and laying off about 700 workers as the pot giant continues restructuring its operations in a bid to achieve profitability. 

The Edmonton-based cannabis producer said in a statement it is closing five smaller-scale facilities in Quebec, Saskatchewan and Alberta this year to consolidate production at its four remaining plants, while booking a $60-million impairment charge related to the closures in its fourth quarter. Aurora also said it plans to take a $140-million charge related to a revaluation of its raw cannabis given shifting consumer demand. 

"We have undertaken a strategic realignment of our operations to protect Aurora's position as a leader in key global cannabinoid markets, most notably Canada," said Michael Singer, Aurora’s executive chairman and interim chief executive officer, in a statement. "Both the Canadian facility rationalization and inventory revaluation are expected to improve gross margins and accelerate our ability to generate positive cash flow." 

The company said in a statement that it will cut 25 per cent of its administrative staff while cutting 30 per cent of its production workforce. A spokesperson subsequently confirmed the total workforce reduction is approximately 700 people. 

Cantor Fitzgerald analyst Pablo Zuanic said in a research note published Tuesday that the smaller facilities accounted for about 40 per cent of Aurora's costs and the company remains on track to report positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the next two quarters.

Aurora's plant closures come several months after the company announced it would reduce its workforce by 500 staff while suspending construction of some of its production facilities in Alberta and taking a $1-billion writedown. 

Since then, other major cannabis producers in Canada have also announced plant closures, such as Canopy Growth Corp. and Tilray Inc. amid an oversupplied domestic market, higher costs associated with growing pot indoors, and pressure from investors to cut costs and show profits. 

An Aurora official told BNN Bloomberg that the company doesn't expect to see its total cannabis capacity decline as a result of the closures, stating that the remaining cultivation plants have been equipped with additional automation to offset any production shortfalls. 

The company official added that Aurora doesn't anticipate closing any additional facilities, with production expected to meet demand in the Canadian market for the next two to three years. 

Aurora said that with the workforce reductions, its selling, general and administrative expenses would be about $42 million in the fiscal first quarter, coming in line with the $40 million to $45 million rate it targeted in February when it made its initial job cuts.

It also said it now plans to restart production at its facility in Denmark which "can adequately service the European market" with medical-grade cannabis.