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Aurora’s Growing Debt Is Making It a Riskier Bet

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Jan. 28 2019, Updated 3:12 p.m. ET

$345 million raised

On January 24, Aurora Cannabis (ACB) closed a $345 million offering on senior convertible notes due in 2024 carrying a yield of 5.5%.

Following the deal’s close, the company’s shares rose nearly 7% on January 24 compared to a day earlier. Overall, the company rose ~4% last week.

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Use of proceeds

With this cash infusion, Aurora Cannabis will have the capital to fund its short-term and long-term investment needs. Its short-term investments relate to its use of proceeds to fund working capital, and its long-term investments relate to its expansion activities in the booming cannabis industry.

In a related press release, Aurora Cannabis stated that it “expects to use the net proceeds from the offering of the notes to support its Canadian and international expansion initiatives, for future acquisitions and for general corporate purposes, including working capital requirements to continue the Company’s accelerated growth.”

Companies including Canopy Growth (WEED), Tilray (TLRY), and Aphria (APHA) are all in the race to quickly increase their footprints to gain a first-mover advantage in the Canadian and international markets (MJ). However, the size of this expansion has required larger capital than what the companies can source internally. Thus, it’s not uncommon to see growing cannabis companies take on capital from outside sources.

The convertible note, with its coupon of 5.5%, increases the company’s debt obligation. Aurora already has relatively high debt. Read on to learn about why this increased debt makes the stock risky.

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