It was a busy week in the cannabis sector.  Aurora Cannabis (ACB) announced that they would be moving forward with a reverse split in order to remain on the NYSE.  In their earnings report released on Tuesday, OrganiGram (OGI) reported a decline in revenues. Aphria (APHA) also reported earnings which beat analyst expectations.  And Canopy Growth (CGC) announced on Thursday that it would be further scaling down their operations. 

Aurora Cannabis (ACB) announced a reverse split

The most talked-about news in the cannabis sector this week was from ACB.  The company said they would be moving forward with an already approved reverse stock split of 1:12. This means that investors of ACB will see their share count reduced by a factor of 12 but the new shares will increase in value by a factor of 12. 

The reverse stock split will not eliminate any shareholder equity in itself, but many investors have lost confidence in the company since the news, which caused their stock to fall about 13%. 

The company also announced that it would continue to sell shares in an attempt to stay above water and finance their operations. This capital raised through an at the market offering would, of course, be further dilutive. 

Canopy Growth (CGC) shuts down yet another facility

Ahead of earnings CGC announced that they would be scaling down operations across three countries and eliminating another 85 full-time employees.  This is an example of the COVID-19 crisis impacting a market that was already suffering. 

Regarding the three individual countries, CGC said it entered into an agreement to exit its operations in South Africa and Lesotho. CGC’s indoor facility in Yorkton, Saskatchewan, will be shut down, “to further align production in Canada with market conditions.” 

Finally, Canopy Growth said that its cultivation operations in Colombia would be shutting down. They are transitioning to an “asset-light model.” 

Aphria (APHA) posts a surprise earnings beat

It wasn’t all bad news from the cannabis sector this week as APHA posted another stellar quarter. The company beat analyst estimates and recorded a substantial increase in revenues despite the tough market conditions. 

The company brought in $144 million in revenue this past quarter despite the COVID-19 crisis. APHA has been growing revenues in its medical and recreational business with substantial growth in both segments. 

The company advanced its international operations and received its EU-GMP certification which came from the Malta Medicines Authority. Avanti Rx Analytics, as well as the GMP annex at the Company’s Aphria One facility now allows the company to begin to supply medical cannabis across the EU. 

APHA also ended the third quarter with a strong balance sheet and liquidity which included $515.1 million in cash. 

(Disclosure: The author is long ACB and APHA)

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ACB shares were trading at $0.72 per share on Friday morning, up $0.05 (+7.45%). Year-to-date, ACB has declined -66.67%, versus a -11.40% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaron Missere

Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...

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