Shares of Aurora Cannabis (NYSE:ACB) are popping in pre-market trading this morning following news of a $3.8 billion tie-up of Canadian marijuana rivals Tilray (NASDAQ:TLRY) and Aphria (NASDAQ:APHA). ACB stock was up 1.5%.
The Edmonton, Alberta-based Aurora earlier today issued a business update that revealed both operational and balance sheet improvements.
Aurora said it gained “greater financial flexibility to execute the business transformation plan,” after reaching a deal with its lenders to extend the maturity of its credit facility to Dec. 31, 2022, transitioning the facility to a “minimum liquidity covenant” from a minimum EBITDA [earnings before interest, taxes, depreciation and amortization] covenant.”
Boosting Cash Conversion
“We are moving to a more variable cost structure in cultivation by expanding our network of external supply and responsibly scaling back production from our fixed asset network. Specifically, in November we closed our Aurora Sun facility and are now scaling back production at Aurora Sky to 25% of its previous capacity,” the company said in a press release. The Aurora Sky facility shut down operations effective Dec. 15.
The pot grower has expanded its network of external supply by implementing spot purchasing of outsourced third-party supply. Aurora said it expects to further expand external supply of dried flower across its brands to reduce cultivation risks and improve its cash conversion cycle.
Meanwhile, the company said it had about 450 million CAD ($352.9 million) in cash on hand as of Dec. 15 and is confident in its liquidity position and its ability to fund its current plan, while remaining open to new opportunities.
Washington Catalysts for ACB Stock
ACB stock is up 152% since hitting a 52-week low of $3.71 on Oct. 28. For the company to remain in double digits, it will have to do more than ride President-elect Joe Biden’s coattails, InvestorPlace contributor Will Ashworth wrote earlier this week.
Earlier in December, the U.S. House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement (MORE) Act which decriminalizes cannabis at the federal level, providing additional opportunities for Aurora and all the other Canadian cannabis companies south of the border.
Ashworth added that he would be hesitant to buy ACB stock for double digits. “However, I do think it’s making progress. Were it to fall back into the $7 range, aggressive investors ought to be all over it.”
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, following fintech, agtech and property tech startups.