Third Quarter 2026 Results Conference Call - AURORA CANNABIS INC

Explicit Guidance:

• Q4 2026 Cash Flow: Management expects a second and final $8 million cash inflow in the fourth quarter of 2026 from the completion of the unwinding of the captive insurance arrangement.
• Q4 2026 P&L Improvement: Cost reduction actions at the Kelowna facility (including >30% workforce reduction) are expected to begin contributing positive P&L benefits in the fourth quarter of 2026.
• Share Repurchases: Following Q3 2026, the company announced a potential substantial issuer bid (SIB) of up to $50 million CAD at a price not to exceed $1.35 USD per share, subject to approvals.

Business-Segment Outlook:

• Cannabis Operations: The segment remains below expectations following the exit from the unprofitable domestic dried flower category. Management is conducting a strategic review to evaluate alternatives, including potential asset divestitures, productivity initiatives, or restructuring to improve financial performance.
• Cannabis Retail: Net revenue reached a record high in Q3 2026 ($85.6M); management anticipates continued focus on value-backed conversions and mitigating market contraction in Alberta and Ontario.
• Liquor Retail: Same-store sales declined 6% due to soft demand, though private label sales are outperforming national brands by 8.5 percentage points; management expects margin discipline to continue.
• U.S. Operations (Parallels): Indirect equity ownership in Parallels has increased to ~92%. Management is evaluating paths to direct ownership and financial consolidation of Parallels' medical cannabis business, citing attractive scale and margins as the driver.
• Ontario Franchise: Subject to regulatory closure and a $200,000 penalty payment, operations are expected to transition to a modified franchise structure (administrative services only) and be deconsolidated from S&DL financial statements, reducing reported net revenue by <del>$105 million while minimizing operating income impact (</del>$2 million).
• Ethelville Facility: Expected to receive EU-GMP certification shortly; management anticipates this will eliminate processor costs ($0.20–$0.45/g) and, combined with facility upgrades (modernization of lights/HVAC), improve yields and realized pricing for international markets.

Market and Competitive Outlook:

• Domestic Cannabis: The company has determined that its current infrastructure is unsuitable for competing on price in the domestic dried flower market, which is dominated by large-scale hybrid/greenhouse LPs with lower cost structures; the strategic pivot is to focus on high-margin edibles, beverages, and licensed distribution.
• U.S. Regulatory: Management is not waiting for federal Schedule III action for recreational cannabis to advance strategy; the focus remains on consolidating medical exposure and ring-fencing recreational assets to facilitate potential up-listing.
• Operational Efficiency: Significant opportunities exist to improve labor efficiencies and capital productivity within U.S. cultivation facilities to drive down costs and improve competitive positioning.

Macro / Industry Outlook:

• Ontario Regulation: Management anticipates resolution of long-standing regulatory matters with the Alcohol and Gaming Commission of Ontario, viewing the finalized structure as a path toward normalized franchise operations.
• Capital Markets: No specific macroeconomic forecasts provided, but management emphasizes maintaining balance sheet flexibility via a debt-free status and investment portfolio to navigate market conditions.

Strategic Initiatives:

• Capital Allocation: Accelerated share repurchases in 2026 (~23M shares, ~$45M) with a focus on returning capital when shares are undervalued; potential SIB of up to $50M to further accelerate returns.
• U.S. Capital Deployment: Continued funding of the Sunstream joint venture, including investments in a new cultivation facility in Gainesville, Florida, and debt acquisition at a discount (75% of face value).
• Strategic Review: A formal review is underway for Cannabis Operations to assess divestitures and broader productivity initiatives.
• Infrastructure Investment: Ongoing upgrades at the Ethelville facility to enhance capabilities and yields for international markets.
• Financial Restructuring (Ontario): Contemplation of a ~$30 million third-party secured financing deal to repay existing S&DL debt, with proceeds restricted as collateral during the franchise transition.

Risks and Headwinds to Outlook:

• Cannabis Operations Underperformance: Continued weak performance in cannabis operations poses a significant headwind to consolidated profitability; the strategic review outcomes (divestiture vs. restructuring) remain uncertain.
• Regulatory Delays: The timeline for the Ontario franchise transition and the resolution of EU-GMP certification, while anticipated soon, carries execution risk regarding the finalization of documentation and payments.
• Market Contraction: Persistent softness in liquor retail same-store sales (6% decline) and contraction in cannabis retail markets (Alberta/Ontario) remain risks to revenue growth.
• Implementation Risk: The anticipated P&L benefits from the Kelowna workforce reduction and facility upgrades are projected for Q4 2026 but may vary based on execution.

Management Tone on the Future:

• Cautiously Optimistic on Cash Flow: Management expresses encouragement regarding record free cash flow ($20M) and the return to positive adjusted operating income, citing "financial discipline" and "cost control."
• Confident in Strategic Pivot: Tone suggests confidence in the decision to exit the dried flower category and focus on higher-margin categories and U.S. medical consolidation, viewing the strategic review as a necessary step to unlock value.
• Disciplined Capital Allocator: Emphasis on maintaining flexibility and returning capital selectively, with a measured approach to the potential $50M SIB.

Miscellaneous:

• Deconsolidation Impact: If the Ontario franchise operations are deconsolidated, it is expected to reduce reported net revenue by <del>$105 million (based on trailing 12-months) but have a negligible impact on operating income (</del>$2 million).
• Cost Savings Potential: Elimination of third-party processors via EU-GMP certification could save $0.20 to $0.45 per gram.
• Currency: All financial figures are presented in Canadian dollars unless otherwise noted (e.g., share repurchase prices in USD).