Aurora Cannabis (NYSE:ACB) stock may fall without further asset sales. ACB recently sold shares in an investment it had made in another Canadian cannabis stock The Green Organic Dutchman (TSE:TGOD), which provided some much-needed funds. The sale netted Aurora CA$85 million which it can use to fund its losses.
I wrote recently that Aurora Cannabis stock would fall unless it could increase its liquidity. I estimated that as of right now Aurora had CA$236 million in cash after its recent losses in Q2, plus my estimate of losses in Q3. This figure included ACB’s recently-closed $360 million credit facility.
With the sale of the shares of TGOD, ACB likely has close to CA$321 million, depending on the rate of losses it has incurred in Q3.
ACB Has Other Securities It Could Sell
The market is still worried about ACB’s liquidity. ACB stock has a market value of CA$6.85 billion. This seems to be way too high, as I pointed out in my previous article.
Canopy Growth (NYSE:CGC) has a $CA12 billion market value. But CGC has CA$3.2 billion in cash and securities as of June. ACB has only CA$236 million based on the calculations above.
Aurora is likely going to have to sell other assets or borrow more money if its losses continue beyond the September quarter. For example, Aurora’s latest financial statements indicate it has a 23% stake in an Australian stock Cann Group Limited (ASX:CAN). Cann Group has a market value of AU$234 million. This works out to a value to ACB of US$36 million, or CA$48.3 million.
Aurora has shares in another small Canadian company called Radient Technologies (CVE:RTI) which trades on the TSX. ACB stock’s latest financial statements reports that the fair value of its holdings is CA$30.9 million. ACB also has a number of warrants in the stock with nominal value.
Another holding is its 24.8% stake in shares in Alcanna (TSE:CLIQ) worth CA$54.9 million as of June 30. Various other holdings include CTT Pharmaceuticals (OTC:CTTH) where it has an 8% stake. CTTH has a market value of US$24.3 million, so ACB’s stake is worth CA$2.8 million.
Aurora Cannabis also has stakes in several private Canadian companies, including Capcium, Choom Holdings and Investee-B. These are immaterial to ACB’s liquidity since they cannot be easily sold.
Aurora’s Total Liquidity Estimate
In addition, ACB owns convertibles in two public companies which together had a fair value of CA$20.3 million. The convertible debentures are not public so again they provide no liquidity cushion for Aurora.
The total of ACB’s liquid securities is worth CA$137 million as of today. This will help Aurora in case it needs to sell assets quickly to raise liquidity. So my estimate is that ACB has $321 million in liquidity plus $137 million in available-for-sale securities that could be easily sold. That brings its total estimated liquidity to CA$458 million as of mid-September.
Equity Issue Likely for Aurora Cannabis Stock
In my previous article I wrote that my estimate was that Aurora burned through CA$180 million to CA$200 million last quarter and likely this quarter, including capital expenditures and asset sales. My estimate of $321 million in cash as of September includes this cash burn for Q3. The $458 million in cash and securities that ACB has available may give it some breathing room for one-and-a-half to two quarters after the September-end quarter.
If ACB does not become free cash positive by the end of this quarter, the most likely path that Aurora will follow is a new secondary offering. Aurora has already sold one of its largest assets, TGOD, and may have to sell others as well.
The problem is an equity issue for Aurora Cannabis stock would dilute shareholders. It would likely be issued at a huge discount to the present price. Further debt raises would only add to ACB stock’s estimated CA$500 million debt.
In summary, Aurora Cannabis stock may not rise anytime soon — at least not until Aurora can stop the cash flow hemorrhaging. In fact, Aurora Cannabis may need to raise cash from selling assets or issuing equity in the coming months to fund its losses.
You should probably sell Aurora Cannabis stock if ACB announces further asset sales. That would indicate its liquidity issues is worse than expected.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks and was launched on August 30. Subscribers during September receive a 20% discount, plus a two-week free trial.