Investors in the markets, are seeing a lot of back and forth movement, alongside many positives and negatives showing up in companies fundamental businesses. In the case of Aurora Cannabis, the potential of the cannabis industry seems unlimited, however shareholders of Aurora are facing the concern of whether the Canadian cannabis cultivator will emerge on top in the emerging field.
The question on investors’ minds at the moment, is one that many analysts have been asking also, and that is, is Aurora Cannabis spending too much money? Shares of the cannabis giant saw a slip of 6% after the Canadian based cultivator received comments from analysts at Merrill Lynch. The comments ranged from positive to negative feedback, with the positive focused on how Aurora have earned a leading role in the cannabis industry, however concerns were raised when analysts started to see if the method in which they got to the top, is sustainable over the long term.
Analysts at Merrill Lynch, downgraded their rating on the stock from a buy to a hold, and cut their price target from $10 down to $8. The analysts praised the cannabis company for their success in building up a substantially large cannabis operation that has huge international scope, and the way the company has controlled their costings in an effort to boost their bottom line.However the concern that analysts share, is that despite the huge efforts made by Aurora, their strategy has so far involved using up a large portion of their liquidity, and that is putting financial pressure on the company, which in turn could lead to the company having to receive further financing.
Focusing their concerns analysts have said that a convertible debenture that is set to come due in early 2020 is something they cannot ignore. With past debt offerings the company have been involved in, Aurora have used the ability to redeem their debentures using shares of the company rather than cash. However unfortunately for Aurora, this debenture has a conversion price of $13.05 per share, which is a long way from where the company is currently trading. When Aurora decides to pay, the $230 million cash outlay could cause the company some problem, and if they do manage to replace the cash with stock, it would further dilute the shares that investors have.
Graham Sanders - AMT Associates