ACB strategy needs to be held to account.Given supply demand economics, ACBs current marginal asset utilization and market mix, I think there is a strong strategic argument to revisit ACBs "we're not for sale anytime soon" strategy as articulated by CEO Terry Booth.
ACB appears intent on persuing a strategy of global market dominance and likes to think of itself as a producer of medical/pharma products and not as a commodity supplier.
The Q2 guidence suggest that ACB is operating at about 1 percent of its global capacity and that the least significant component of its product mix is medical mj - especially as it pertains to international sales which remain flat. With respect to the later, I am left flummoxed into the thinking that went into ACB's decision to further dilute the share base by purchasing Farmacias Magistrales, a small rundown, windowless, tinshack roof building in a low rent district of Mexico city. What research supports the belief that it can sell Canadian weed to the Mexican market at Canadian prices? In case they haven't heard, the Mexican weed on the black market in Canada is undercutting ACB's existing lowest margin sales.
Everyday more and more LP's are sprouting up and competing for capital dollars to build million square foot greenhouses in order to be the lowest cost producer. At the limit, this will only increase supply (ex.Oregon). Given demand is relatively constant, supply demand economics dictate prices will fall. As revenue = price * quantity, producers will need to increase quantity to maintain revenues as prices fall. Because harvesting involves a variable cost, more quantity means more cost. This set of dynamics squeezes profit and lowers cash flow. In the long run, markets will be saturated and mj will be a low margin commodity. This same argument applies to medical mj.
Contrast this strategy with allocating a propotion of ACBs immense unused capacity with an established value added company - be it beverage, pharma, or other. As shown by Weed, Tilray, and Cronos- such a partnership would immediately benieft shareholders and serve to vicariously establish lend long-term sustainability to the company. Yet Aurora's CCO stated in a recent BNN interview that with respect to consolidation, we should look to Aurora's past behavior as a predictor of future strategy. From my perspective Aurora's past strategy is to dilute sharholders through questionable bought deal/debentures acquisitions that have the immediate effect of adding to costs and the promise of profitability some day.
As an investor I am sensitive to the long term prospects of ACB. In my opinion, ACB's strategy to continue doing what it has done in the past focuses on the near and intermediate term (gain market share, distribution channels).This strategy has very low barriers to entry. To this point, Aphria has recently announced a similar expansion stratgy. In the long run this strategy places ACB in a low margin high cost environment. Compounding this is the billion dollar share float that at best limits profit in terms of pennies to each share. By partnering with an established company, ACB can establish immediate value via huge barriers to entry while benefiting form first mover advantage. Why would you not even consider this strategy?
Please Cam and Terry - rethink this through.