Bank Of America Downgrades Aurora Cannabis, Concerned About Cash Burn

Aurora Cannabis Inc 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

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.

Benzinga's Cannabis Capital Conference heads to Detroit on Aug. 15 -- Click here to learn more!

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.

Never miss a news story in the cannabis world. Click here to check out Benzinga Cannabis for more.

date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorCannabisDowngradesPrice TargetTop StoriesMarketsAnalyst RatingsBank of AmericaCanadaCBDChristopher Carey
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

The Benzinga Cannabis Capital Conference is coming to Florida

The Benzinga Cannabis Capital Conference is returning to Florida, in a new venue in Hollywood, on April 16 and 17, 2024. The two-day event at The Diplomat Beach Resort will be a chance for entrepreneurs, both large and small, to network, learn and grow. Renowned for its trendsetting abilities and influence on the future of cannabis, mark your calendars – this conference is the go-to event of the year for the cannabis world.

Get your tickets now on bzcannabis.com – Prices will increase very soon!


Loading...