Canada-based marijuana grower Aurora Cannabis Inc. (NYSE: ACB) reported fiscal second-quarter results before markets opened Thursday. Missing from the report was a detailed accounting of expected impairment charges announced last week when Aurora reported former chief executive Terry Booth’s sudden departure.

In its press release announcing Booth’s departure, the company also said its second-quarter report would include asset impairment charges on certain intangibles and property, plant and equipment in a range of $190 million to $225 million and write-downs of goodwill in the range of $740 million to $775 million.

What investors got instead is a much-abbreviated balance sheet showing that working capital rose by 236% year over year in the second quarter, that Aurora’s inventory value was up 21% to C$216,735 and that total assets had fallen by 17% to C$4.67 million. The reported drop in assets totals nearly a billion dollars, close to the low end of the ranges mentioned last week. Aurora knows the exact numbers, so it should publish them.

Perhaps the company was hoping that talking about how it hopes to fix its operations and cost structure would give investors some good news to hang their hats on and keep the share price from continuing its 30% drop in the first several weeks of 2020, on top of a 59% plunge in 2019.

What Aurora’s Got Up Its Sleeve

Michael Singer, Aurora’s executive chair and interim CEO, said:

Despite delivering modest growth in our core medical and consumer business in Q2, we took immediate and deliberate actions to align our Company to current market conditions. As announced last week, being a profitable cannabis company for our investors is the singular near-term focus for Aurora and we have begun to implement a business transformation plan where we intend to manage the business with a high degree of fiscal discipline.

Glen Ibbott, Aurora’s chief financial officer, was more upbeat:

The transformational actions we announced last week have already positively impacted SG&A expense and we are confident that our run-rate will be approximately C$40 million – C$45 million as we exit the fiscal fourth quarter of 2020. This is a very important step toward EBITDA profitability. In addition, our credit facility was amended to provide greater flexibility to Aurora. More specifically, Aurora chose to downsize the facility by C96.5 million with the elimination of undrawn term loan capacity, and further used C$45 million of restricted cash to repay a portion of the drawn term loan balance for the purpose of reducing leverage and cash required for debt service.

A more measured approach to Aurora’s future has been outlined by boutique investment bank Ello Capital. Ello reckons that Aurora has just 2.3 months of liquidity remaining.

Aurora expects its cost-cutting to turn the company’s cash flow from negative to positive by the September quarter. Ello’s CEO, Hershel Gerson, commented, “Nobody knows when that’s going to happen.” Gerson told Barron’s that he figures that Aurora’s latest adjustments left it with about $117 million in cash and a monthly burn rate of around $50 million. That works out to 2.3 months of liquidity.

If Not Cash, Then, Maybe, Debt

Marijuana companies have raised a total of $1.16 billion in capital so far in 2020. Of that amount, about $491 million is debt compared to nearly $358 million in debt initiated in the first six weeks of 2019.

In all of last year, cannabis companies raised $8.1 billion in equity and $3.2 billion in debt financing. Debt financing for the year rose by 29% compared to 2018, while equity financing fell by about 31% from $11.7 billion in 2018. Marijuana stocks had a tough year in 2019.

Aurora has no chance of raising cash through an equity offering. So if it needs more cash, it can either sell some of its physical properties and then lease them back from the buyer, a so-called sale-and-leaseback deal, or the company can just sell some assets off and shrink or it can borrow more money.

It is worth noting here that none of Aurora’s competitors is likely to raise cash through an equity offering. Tilray Inc. (NASDAQ: TLRY), Canopy Growth Corp. (NYSE: CGC), Cronos Group Inc. (NASDAQ: CRON), CannTrust Holdings Inc. (NYSE: CTST) and OrganiGram Holdings Inc. (NASDAQ: OGI) traded down on the year by 75.69%, 27.07%, 32.18%, 82.14% and 41.40%, respectively, in 2019. None is in a position to offer more equity, further diluting the stock.

Debt may be a different story, however. So far this year, three U.S.-based companies (Curaleaf, Cresco Labs and Acreage Holdings) have secured $300 million, $200 million and $100 million, respectively in new debt financing. Aurora, as the CFO pointed out, reduced its credit facility and used restricted cash to pay back some C$45 million in return for more favorable terms. That sounds confident given the state of Aurora’s medical cannabis market and the company’s short-term liquidity concerns.

Perhaps interim CEO Singer revealed something on the company’s conference call that made investors feel better. Aurora’s stock traded up more than 3% Thursday morning, at $1.51 in a 52-week range of $1.43 to $10.32. Analysts have a consensus price target on the stock of C$3.15 ($2.38). The S&P 500 is up about 4.5% so far in 2020, while Aurora shares trade down about 30%.

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