The bubble in cannabis stocks peaked in early 2019 and continued to pop from there. Aurora (TSX:ACB) is a classic example of a company that is shrinking. After the writedowns and lower operating costs end, the stock might stop falling, too. How else might investors avoid further losses?
Investors deep in Aurora or Tilray (NASDAQ:TLRY) stock should not expect break-even for a few years, at least. Averaging down to lower the cost basis is an option but it is far too early to do this.
Not only will Aurora need new leadership, after the CEO announced his retirement, but Aurora must borrowing funds to keep operations from stopping.
Aurora forecast revenue of $62 million – $66 million Canadian. It also announced a massive 18% workforce cut which includes management. While capital expenditures will fall in 2H to $100 million Canadian, it will take impairment charges of up to $225 million Canadian and up to $775 million Canadian in the Q2 report.
A Bloomberg report that Tilray will cut its global workforce by 10% is equally disturbing for cannabis investors. The sector clearly has a smaller addressable market globally. Now, too many big firms have too much supply and too many facilities.
The shrinking has to accelerate, otherwise, these big firms will file for bankruptcy.
Wait for revenues to head higher for at least two quarters in a row. When that happens, average down on stocks like Aurora.
