ACB: Why is Aurora Cannabis Trading Down 13%?

Yesterday, Aurora Cannabis (ACB) provided a corporate update which included the news that its board approved a 1-for-12 reverse stock split scheduled for May 11.

The company said they are doing this to improve liquidity and regain compliance with New York Stock Exchange (NYSE) listing requirements, after its stock traded below $1 for more than 30 days.

The update also included information as to how they are going to strengthen their cash position.

ACB investors have been concerned about their liquidity for some time. As of March 31, 2020, the Company had approximately $205 million of cash. This includes all amounts raised under the existing, and now completed, $400 million At-the-Market Offering program which was announced in May 2019.

ACB stated that in order to support the balance sheet and help ease liquidity concerns, the company plans on filing a new prospectus supplement for a renewed ATM program. This will allow ACB to raise additional equity capital following its current base shelf prospectus. The current program has US$350 million remaining. ACB plans on using a portion of this available liquidity to continue to support its balance sheet during the uncertainty caused by the COVID-19 crisis.

The company also reaffirmed its previous commentary that fiscal Q3 2020 cannabis net revenue is expected to show modest growth relative to fiscal Q2 2020.

Shares of ACB reacted negatively to this update, dropping 13% during Monday’s trading session to about $0.75.

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ACB’s interim CEO Micheal Singer said, “Our focus today continues to be on financial discipline across the entire organization. We are taking appropriate actions to strengthen our cash position and maintain financial flexibility as we navigate through the current environment. As Aurora drives towards generating positive free-cash-flow, we are confident that our shareholders will be supportive of our further actions to solidify our balance sheet and position the Company for success.”

No one is overly surprised with this update from ACB but I was hopeful it could be avoided. Doing a reverse split is rarely a good thing. If you’d like to see me talk more about why that is, check out this video on our YouTube channel.

At this time, ACB’s future looks very uncertain. In my opinion, ACB needs a new full-time CEO, and they need it fast. They need a leader with a vision that can outline a plan as to how the company intends to generate increased revenues.

(Disclosure: The author is long Aurora Cannabis)

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ACB shares rose $0.00 (+0.51%) in after-hours trading Tuesday. Year-to-date, ACB has declined -65.28%, versus a -11.31% 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...