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Is Aurora Cannabis Back In Business or Destined To Let Investors Down Once Again?

May 19, 2020 • 7:13 AM EDT
4 MIN READ  •  By Anthony Varrell
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Following the completion of a reverse stock split, Aurora Cannabis (ACB.TO) (ACB) initially came under pressure and this is an opportunity that our readers need to be aware of.

Aurora Cannabis did not complete the reverse split because it believed that it was the right decision. In order to remain listed on the New York Stock Exchange (NYSE), the Canadian cannabis producer was forced to conduct a reverse split. The purpose of the split was to artificially raise the stock price by reducing the number of shares that it has outstanding.

Prior to the reverse split, Aurora Cannabis had more than 1 billion shares outstanding and the share price was in a tailspin. One of the primary reasons for Aurora Cannabis’ high outstanding share count was related to the acquisitions that were previously completed. Between MedReleaf and CanniMed, the company printed more than $7 billion of stock and this amount does not include several other overpriced acquisitions that’s were made by Aurora. Below we have highlighted the rating and price target changes on Aurora Cannabis and find these to be significant:

  • Altacorp raised its price target to $10.40 from $2.50
  • Cowen and Company cut price target to $11 from $12
  • Piper Sandler went from sell to neutral and cut the price target to $10 from $12
  • Eight Capital raised price target to $11 from $2
  • Canaccord lowered its price target to $24 from $27
  • CIBC lowered its price target to $14 from $27
  • MKM Partners raised price target to $18 from $12

While the Canadian stock market was closed on Monday for Victoria Day, the US market was open, and Aurora Cannabis continued to outperform. On Monday, the shares climbed another 40% higher and momentum is trending to the upside.

Last week, Aurora Cannabis released first quarter financial results that exceeded our expectations and the market responded favorably to these numbers. The shares jumped more than 60% following the earnings announcement and we were impressed with how the story has improved.

During the quarter, the Canadian cannabis producer reported to have generated $78.4 million of revenue ($72.6 million of net cannabis revenue) and this represents a substantial increase when compared to the prior quarter. The company benefited from the launch of Daily Special, Aurora’s value brand, as well as a full quarter of cannabis 2.0 products.

As of March 30th, Aurora Cannabis reported to have more than $200 million of cash on the balance sheet. This is a strong number and we are favorable on the methods the management team used to cut costs and raise capital. The management team has been highly focused on ensuring that the business is growing at the right pace and we find this to be a better strategy than what was in place before (expand as big and as fast as possible).

Aurora Cannabis seems to be moving in the right direction and we believe that the change in the management team has benefited the business in a significant way. Aurora Cannabis CEO Michael Signer has proven to be a strong leader and we are favorable on the direction that he is bringing the business. Over the next year, we expect to see the company continue to ramp revenues, cut costs, and improve margins.

Prior to the earnings report, Aurora Cannabis was under considerable pressure and was trading at oversold levels. After the recent move higher, momentum is trending to the upside and this is a metric that we are closely following. At current levels, we believe that Aurora Cannabis has a favorable risk-reward and is an opportunity to be aware of.

Aurora Cannabis was one of the early movers of the Canadian cannabis industry and is a business that we have watched develop from inception. Following the earnings report, several Canadian broker-dealers changed their rating and increased their price target on Aurora Cannabis. This is a positive development for the business, and we are favorable on how quickly sentiment changed for the Canadian cannabis producer.

Going forward, the name of the game for Aurora Cannabis is execution. We consider the Canadian cannabis producer to be a turnaround story and will monitor how the management team continues to execute on previously announced initiatives.

If you are interested in learning more about the Canadian cannabis producer, please send an email to support@technical420.com to be added to our distribution list.

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Authored By

Anthony Varrell

Anthony Varrell is Managing Director of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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