One of the few remaining aspects of the Aurora Cannabis (ACB.TO) (ACB) story is no more…
Nelson Peltz has resigned as a senior advisor to the Canadian cannabis producer and we are not surprised by the development. Through 280 Park ACI Holdings, Peltz was involved with Aurora Cannabis and his involvement was an attractive aspect of the story.
When Nelson Peltz joined Aurora Cannabis, we were surprised by his selection. When compared to Canopy Growth Corporation (WEED.TO) (CGC), Aurora Cannabis represented a less capitalized growth opportunity that had a much less attractive capital structure.
Following the completion of a 12-for-1 reverse split, Aurora Cannabis improved the balance sheet by reducing the number of shares outstanding. This transaction did not create any value for Aurora Cannabis and we were surprised to see the shares rally after the development.
We believe that Aurora Cannabis is a fundamentally different business from what it was when Nelson Peltz joined. When he got involved, the company was focused on the Canadian and the international cannabis opportunity. Now, Aurora Cannabis seems to be laser focused on the US cannabidiol (CBD) market and this is a vertical that we are not bullish on.
The US CBD industry is fragmented, and we are cautious with the leverage that Aurora Cannabis has to it. We believe that the name of the game for Aurora Cannabis is execution and the market seems to be fed up with the opportunity. The recent trend has been to the downside and we remain cautiously optimistic with the Canadian cannabis producer.
During the last month, several leading broker-dealers have lowered estimates and price targets on Aurora Cannabis and Peltz’s resignation does not make the situation any better. We believe that the next six months are crucial for the organization and would expect to see the company file for bankruptcy if it is not able to quickly get its act together.