Aurora Cannabis Analyst Says Stock Will Go Up In Smoke, Sets Zero Price Target

Aurora Cannabis Inc ACB shares were burning up Monday after a sell-side analyst took the most bearish stance possible on the Canadian company's stock. 

The Analyst

GLJ Research analyst Gordon Johnson initiated coverage of Aurora Cannabis with a Sell rating and zero price target. 

Johnson: Aurora Could Run Out Of Cash Before July 2020 

Aurora Cannabis’ equity is effectively worthless, Johnson said in the Monday initiation note. (See his track record here.) 

“Our view that ACB’s equity holds no value is driven by our work, which implies the company is facing a liquidity crunch that will, ultimately, risk its status as a going concern,” the analyst said. 

Aurora Cannabis recently added $160 million to its existing $200-million credit facility with The Bank of Montreal, which is backed by the company’s producing assets, but Johnson said the debt carries several restrictions that take effect Sept. 30, 2020.

Aurora’s balance sheet is stretched to its limit, and the company is quickly running out of cash, the analyst said. 

“With roughly nine months to go before these covenants take effect, and our work pointing to continued operating losses for ACB, as well as new open market equity issuances under Aurora’s ATM program, and a further deterioration in Canadian cannabis industry fundamentals on tap, we see risk to Aurora’s ability to continue borrowing from BMO" as soon as June 2020.

Since Bank of Montreal’s debt is secured against Aurora Cannabis’ assets, in the wake of the company’s recent decision to suspend construction at its Aurora Sun and Nordic 2 growing facilities, Johnson said both equity holders and Aurora's lenders should be concerned.

With the current rate of cash burn, GLJ Research expects Aurora to face a liquidty problem before it becomes profitable, the analyst said. 

The company has not proven itself capable of navigating through difficult times ahead and has made several moves that are risky for its shareholders, he said: 

  • Putting its operating assets up as collateral for debt it likely can’t pay back.
  • Altering the terms of its $230 million March 2020 convertible debt terms.
  • Failing to partner up with more established industry players.

“As the pace at which Aurora Cannabis is burning cash becomes clear to the market, barring additional resources from the capital markets, our work suggests the company will run out of cash before 7/1/20,” Johnson said. 

Aurora Price Action

Aurora Cannabis shares were down 3.42% at $2.54 at the close Monday. 

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Photo courtesy of Aurora. 

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