Aurora Cannabis (NYSE:ACB) just raised another $125 million on January 21 in US dollars that will allow it to survive several more quarters. If Aurora can cut its crushing 400 million CAD in debt, there is a good chance ACB stock could stage a major comeback this year.
ACB stock lost more than 56% of its value over the past year. Lately though, things have started looking up the for company and the stock.
In the past 6 months, ACB stock is down just 5% or so, as of January 22, when it was at $10.65 on the NYSE. In fact, as of January 22 the stock was up 19.3%.
Two Capital Raises in the Past Three Months
Aurora posted dismal quarterly earnings for the quarter ending September 30. It lost over 108.5 million CAD in cash flow from operations. This included 14.6 million CAD in quarterly finance costs from its crushing 400 million CAD in loans and convertible debt.
As a result, the company was left with just 103 million CAD in cash. It wasn’t going to last another quarter if those kinds of losses were repeated in Q4.
Luckily the company was able to raise $150 million in U.S. dollars on November 11 in equity at U.S. $7.50 per share, along with some warrants priced at $9.50.
And as noted earlier, the company just raised another $125 million in U.S. dollars on January 21 at $10.45, along with warrants at $12.60.
This will allow the company to cut its debt somewhat, as well as finance further losses in Q4 and Q1. As long as ACB stock keeps rising, the company might be able to keep on raising capital in order to fully reduce its debt, thereby reducing finance expenses.
On December 16 the company announced it had 450 million CAD on its balance sheet and had restructured a number of its debt covenants.
For example, instead of having to have minimum EBITDA (earnings before interest, taxes, depreciation and amortization) hurdles it now needed to just show minimum liquidity. That helps explain why it has been raising capital recently.
Other statements in the December 16 press release also show that the company is reducing expenses to help it focus now on producing cash flow.
Things Are Looking Up
Moreover, Aurora recently signed a major new distribution agreement with Great Northern Distributors for retail sales execution in Canada. Theoretically, this will allow the company to reduce overhead by cutting its retail sales force. This might allow it to get profitable by essentially becoming a wholesale operation first and foremost.
There is room for the market to believe that things this year will turn around. For one, economic growth should pick up as Covid-19 related restrictions are lifted.
In addition, people will begin to feel more at ease with spending more on entertainment and cannabis with more disposable income available. For example, Aphria (NASDAQ:APHA) recently reported better than expected earnings for its latest quarter.
In effect, all Aurora has to do is try and hang on for the next several quarters. If the company can continue to raise capital at higher and higher prices it might be able to survive long enough until it gets close to profitability.
What’s Next With ACB Stock
Analysts have not been positive on cannabis stocks, according to Barron’s magazine, despite the surge they got from Democrats winning the election.
However, Motley Fool has turned positive on cannabis stocks. They feel that cannabis companies will show a “steep upward trajectory in terms of revenue growth, earnings growth, and profit margin.”
Moreover, Aurora’s new CEO, Miguel Martin, recently told CNBC that we are close to a tipping point where Federal approval of cannabis nationwide could occur. This is due to the takeover by all three branches of the Federal government by the Democrat party.
He told CNBC that his company has a tremendous transformation and had right-sized its expenses. Their core assets in terms of technology and genetic patents will allow the company to get profitable. Mr. Martin also said the company did not need a U.S. partner to enter the U.S. market. That being said, the agreement with Great Northern that Aurora just signed seems to cover just Canada, not the U.S.
The interview with CNBC was very positive on the company’s future prospects. Potential investors in ACB stock should listen to the interview as well as its recent investor presentation. There is reason to believe that ACB stock could stage a comeback if the company can reduce its debt, cut costs and achieve EBITDA profitability.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake writes articles on personal investing at mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
