Why Aurora Cannabis Plans to Sell Its Stake in Alcanna

On Wednesday, Aurora Cannabis (NYSE:ACB) announced that it agreed to sell its stake in Alcanna to a group of underwriters led by Cormark Securities. According to the agreement, the underwriters will purchase 9.2 million shares of Alcanna from the company in a “Bought Deal” at 3.00 Canadian dollars per share. Later, they will offer the stocks to the public through a short-form prospectus. The stocks represent 23% of Alcanna’s total number of shares outstanding. Aurora Cannabis will receive 27.6 million Canadian dollars from the transaction. After the transaction, Aurora Cannabis won’t own any stock in Alcanna. The stock offering could close around June 24, 2020. Meanwhile, the closing date could change to another date if all three parties approve. The deal also has to meet customary closing conditions.

Aurora Cannabis makes positive moves

Last month, Aurora Cannabis surprised investors with an impressive third-quarter performance. The company beat analysts’ revenue and EBITDA expectations. Notably, the company reduced its cash burn by over 43%. Late in May, Aurora Cannabis completed the acquisition of Reliva—a US-based CBD company. The acquisition will likely boost the company’s CBD sales in the US. Reliva is a debt-free company. Overall, Reliva has reported a positive EBITDA in the last 12 months. As reported by the press release, Reliva doesn’t require additional capital expenditure or working capital right now. So, the transaction could help Aurora Cannabis achieve its goal of reporting a positive EBITDA by the first quarter of 2021. At the end of the third quarter, Aurora Cannabis had $230.2 million in cash. Also, the company’s decision to sell its stake in Alcanna could strengthen its balance sheet.

Analysts’ recommendations and expectations

Since Aurora Cannabis reported its third-quarter earnings on May 14, Jefferies, MKM Partners, and Altacorp Capital have all raised their target prices. Meanwhile, Piper Sandlers, Cowen, and Canaccord Genuity have lowered their target prices. As of June 3, analysts’ consensus target price was 14.24 Canadian dollars. The target price represents a fall of 26% from the current stock price.

Overall, Wall Street favors a “hold” rating for Aurora Cannabis. Since the company’s third-quarter earnings, Jefferies has downgraded the stock to an “underperform” rating, while Piper Sandler raised its rating to “neutral.” Among the 16 analysts, 62.5% recommend a “hold,” 12.5% recommend a “buy,” and 25% recommend a “sell.”

Stock performance in 2020

Aurora Cannabis stock has more than doubled since its third-quarter earnings. However, the company still trades 42.5% lower YTD. The company’s stock price fell due to higher operating expenses, increased debt, a weak cash position, and weakness in the cannabis sector. So far this year, the company has underperformed its peers. Canopy Growth (TSE:WEED), Tilray (NASDAQ:TLRY), and Aphria (NYSE:APHA) have all fallen by 18.1%, 41.2%, and 11.8% YTD, respectively.