Shares of Aurora Cannabis (ACB) have been getting crushed recently as more and more downgrades have hit the company. In the past month the stock has dropped more than $1, from $2.60 to $1.50 on the NYSE. Less than a year ago the stock traded over $10, which means the stock is down more than 85%.
Last week, Aurora Cannabis was his with a “one-two punch” from Piper Sandler and Bank of America. Both firms downgraded the stock due to the company’s high debt and ongoing profitability concerns.
Piper Sandler’s published note said it downgraded its recommendation on ACB to underweight. This simply means giving the stock a “sell” rating from the previous neutral rating (Hold). The investment bank also slashed their price target dramatically from $3 to $1.
Piper Sandler put a strong emphasis on Aurora’s balance sheet along with its cash flow issues. They do not expect the company to be profitable until Q3 of fiscal 2021. It is currently in Q3 of 2020 and that indicates another year until Aurora Cannabis can generate a profit.
Another negative weighing on the company was the fact that Aurora Cannabis’s international revenues are taking a hit as well. The company is currently suspended from selling cannabis in Germany as they await a permit to start selling again.
Piper Sandler did acknowledge that Aurora Cannabis remains a powerhouse in the Canadian cannabis market, however, Canada is facing issues which include regulatory bottlenecks and a non supportive government.
Piper Sandler mentioned that Aurora has already sold enough shares to raise CA$80 million but the company will still need to raise an additional CA$200 million more. Due to the current state of the markets and investors being less confident about the sector, this may prove to be difficult for Aurora Cannabis to raise additional capital. Lenders are becoming more and more cautious when lending money to not yet profitable cannabis businesses during these times. This may leave Aurora Cannabis with the only option left available which will probably be more share issuances. Aurora Cannabis has had an ongoing issue with dilution and until they turn a profit things could get worse.
Bank of America also had concerns regarding Aurora Cannabis’s balance sheet. Neither of the analysts mentioned bankruptcy as of yet but Bank of America noted that it “struggles to envision a scenario where shares have sustainable support.”
With harsh downgrades like these, it’s no surprise that shares of ACB have fallen to 52-week lows today. It will be critical for Aurora Cannabis to deliver solid results this quarter and present a realistic roadmap for the next couple of years, if the stock is to stabilize.
(Disclosure: The author owns shares of Aurora Cannabis)
ACB shares were trading at $1.68 per share on Monday afternoon, up $0.03 (+1.82%). Year-to-date, ACB has declined -22.22%, versus a 1.78% 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...