Aurora Cannabis (NYSE:ACB) stock price has been on a deep slide lately. ACB stock is down 14% since it reported earnings on September 11 for the quarter ending June.
The market was deeply disappointed. ACB had guided analysts to expect revenues from $100 million CAD to $107 million CAD for the quarter. But revenue came in at $99 million CAD.
But more importantly, cash is now dangerously low. In fact, two days before the announcement, ACB closed on a $360 million credit facility which was sorely needed.
Cash Flow Losses Continuing
ACB is still generating huge cash flow operating and investing losses. During Aurora Cannabis’s Q4 ending June, its operating losses and investing activities drained out $180.4 million CAD. The amount includes required capital expenditures (capex) and asset sales.
By the end of June ACB’s cash and securities balances had dwindled to $218.8 million CAD. So you can see why Aurora needed to raise the $360 million CAD credit facility in early September.
If ACB’s September quarter was using up another $180 to $200 million CAD, that credit facility just plugged a hole in a dam with a lot of cracks.
The September quarter needs to start showing the company is profitable on a free cash flow basis. Otherwise, ACB will have to continue raising more debt or possibly even equity.
Market Fears about ACB’s Liquidity
ACB stock is reacting to its apparent need for more liquidity. For example, Aurora’s capex spending in Q4 ending June was $167 million CAD alone. ACB sold assets worth $117 million CAD. If it had not done so, losses and investing activities would have drained out $297 million CAD during Q4.
Moreover, ACB’s $218.8 million CAD cash balance included $46 million of restricted cash not available to pay operating bills. That left only $173 million CAD in usable cash at June end.
Here is my estimate of Aurora’s cash balance as of now (mid-September): $236 million CAD ($173 million CAD June cash balance less $297 million CAD cash outflow in the September quarter, plus $360 million CAD in new credit loans on Sept. 9.)
So without that September 9 credit facility Aurora Cannabis might have run out of money in the bank
Aurora Cannabis Stock‘s $7 Billion CAD Valuation Is At Risk
The revenue miss and the recent credit facility spooked the market. These imply Aurora will not be cash-flow positive anytime soon.
It seems amazing that the ACB stock price still has a $7 billion CAD market value given this liquidity balance.
Canopy Growth (NYSE: CGC) has a $12 billion CAD market value. But CGC has $3.2 billion CAD in cash and securities as of June. ACB has only $236 million CAD based on the calculations above.
Investors are spooked. They fear ACB will not be profitable in the next quarter either, and ACB might need to raise equity or take on more debt. An equity issue would dilute shareholders. It would likely be issued at a huge discount to the present price. Further debt raises would only add to ACB’s estimated $500 million CAD debt.
In summary, ACB stock is not going to rise anytime soon — at least not until Aurora can stop the cash flow hemorrhaging. In fact, Aurora Cannabis stock could crater, especially if more equity needs to be raised.
I would wait for Aurora to become cash-flow positive or until ACB stock stops its present slide. Don’t try to catch a falling knife here.
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. The Guide launched on August 30. Subscribers during September receive a 20% discount, plus a two-week free trial.