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Aurora Cannabis Inc (NYSE:ACB) deserves credit for building industry leading scale and strong margins, but Bank of America thinks the company is burning fast at a concerning pace.
The Analyst
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Bank of America's Christopher Carey downgraded Aurora's U.S.-listed stock from Buy to Neutral with a price target lowered from $10 to $8.
The Thesis
Aurora could be considered "among the best" cannabis companies and similar to its peers, Aurora is bleeding out cash, Carey wrote in the note. Aurora's cash position is "less robust" compared to its peers and is on track to turn negative as early as the first quarter 2020.
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Aurora faces a large convertible debenture of CA$230 million at a price of CA$13.05 (versus CA$9.68 at the time of the analyst's note), which is "well out of the money" and may need to be settled in cash. Aurora's cash burn stems from its investments in four production facilities that consists of around 1.35 million new square feet of facility space across Canada, Denmark and Portugal. Based on current estimates, Aurora will have a "paltry" CA$70 million of cash on hand in the first quarter, but the out-of-money convert would bring the cash position in the red.
Ultimately, Aurora's premier status in the cannabis space should help it secure any necessary financing gaps, which implies concerns of solvency are unjustified. It's "less ideal" to seek out new capital from a defensive position compared to other companies who raise capital for "larger untapped growth opportunities," including U.S. CBD-focused companies.
Price Action
Shares of Aurora Cannabis were trading lower by more than 6.6% at $6.92 Thursday morning.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.