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Tailspin continues for Aurora Cannabis (TSX:ACB)

Cannabis
TSX:ACB
11 November 2020 14:39 (EDT)
Aurora Cannabis Inc. - Founder, Terry Booth

Source: The Globe and Mail

Shares in Aurora Cannabis (ACB) have taken another double-digit dive today as the once promising Canadian cannabis bubble continues to deflate.

This morning the company unveiled a US$150 million (roughly C$196 million) financing through the issuance of 20 million units at a price of US$7.50 (C$9.80) per share, which quickly prompted an almost 20 per cent decline in its share price.

It’s the latest event in what has been a tough week so far, following the release of Aurora’s underwhelming first-quarter 2021 results on November 9, which also drove a share price drop of 25 per cent.

Despite posting a net loss from continuing operations of US$82.6 million (C$107.2 million), the figure represents a major improvement compared to the prior quarter’s loss of US$1.42 billion (C$1.85 billion).

“We continue to take the necessary steps to execute our plan and transform our business to achieve sustainable profitability, and ultimately positive cash flow,” said Miguel Martin, Aurora’s newly appointed CEO.

“While we are not satisfied with our past performance in the growing Canadian consumer business, we have a sense of urgency in the execution of our tactical plan to grow profitable market share,” he added.

But it’s not all bad news. The share price declines this week have only offset part of the significant gains made the week before, after the news of Joe Biden’s inevitable U.S. presidency drove a 120 per cent jump from Wednesday to Friday.

The United States Election Day also brought with it the legalisation of recreational cannabis in a host of jurisdictions, including Arizona, Montana, New Jersey and South Dakota.

The share price turbulence, however, is not new. Aurora has had a testing run since its peak price of almost C$165 per share in October 2018, with that number falling almost 95 per cent to just C$8.68 now.

Aurora’s fall from grace mirrors the trajectory of many other companies that had formerly been major players in Canada’s booming cannabis industry: including Canopy Growth Corporation stock price, which has fallen more than 53 per cent since April 2019; Aphria Inc., which has fallen almost 68 per cent since January 2018; and Cronos Group, which has also fallen more than 68 per cent since February 2019.

Perhaps the most prolific example is MedMen Enterprises, which listed on the Canadian Stock Exchange in May 2018. By October the same year, its shares had reached C$8.50 each, but are now worth just C$0.18 – a drop of almost 98 per cent.

The cause for the flailing sector seems largely attributable to an over-hyped market that’s so far failed to reach the astronomical expectations bandied about a couple of years ago.

“It didn’t take a rocket scientist to recognise that these stocks were trading on fantasy and not on fundamentals,” says Jonathan Rubin, CEO of New Leaf Data Services.

“They haven’t had the growth in sales and earnings that they’ve envisioned,” he added.

The move now seems to be a shift towards – or at least a greater emphasis on – the psychedelics industry. A number of regions in both Canada and the United States have already approved psilocybin-based products for the treatment of severe mental illnesses and disorders.

That said, now that the cannabis sector appears to have adjusted itself to investor sentiments, whether the industry will begin to recover remains to be seen.

Aurora Cannabis is currently down 20.87 per cent to C$8.53 per share at 12:18pm EST.

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