Aurora Cannabis has been the subject of bearish market sentiments lately with stocks fluctuating. Aurora Cannabis fell to 8% after the company announced the exit of a key executive amid reports of insider selling, dilutive financing moves and questions about the company’s path to profitability. Aurora shares have lost 24% of their value in the past month, battered by negative sell-side reports.
The Aurora Cannabis stock has lost about half of its value in the course of the year. If you believe an analyst, investors should even prepare for a total crash.
Under the terms of the credit agreements, Aurora Cannabis has reached an agreement with their lenders that by the end of the third quarter of 2020, sufficient cash must be earned to ensure that the debt is no longer four times EBITDA; otherwise, the company would be in breach of the credit conditions.
However, the market situation and the situation of the company itself do not seem to indicate that Aurora Cannabis can meet the credit conditions.
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Aurora Cannabis stock falls from the pedestal
Expert analysts started monitoring Aurora Cannabis stocks and gave the share certificate a “sell” rating right at the beginning. Aurora Cannabis does not have any equity, the experts explained.
In 2021, the Aurora Cannabis stock price will be further reduced on the stock exchange. Until recently, the company was the largest Canadian cannabis stock by market capitalization.
The analysts refer to an imminent liquidity crisis at Aurora Cannabis. This will ultimately “endanger his status as a company,” the expert wrote in his analysis.
“The balance sheet has reached its limits, and the company is quickly running out of money,” he continued.
Is the whole company at risk?
Specifically, they are concerned about the company’s high level of debt. Aurora Cannabis recently increased its $200 million credit facility with the Bank of Montreal by $160 million.
In September, the company announced that it had agreed that the debt under this credit facility would be serviced first. The credit facility was secured with the production facilities of the company.
Lack of access to liquidity is affecting Aurora Cannabis stock
Analyst Gordon Johnson does not believe that Aurora will be able to take out further loans from the Bank of Montreal.
“Before the company becomes profitable, a liquidity problem will arise due to the speed with which Aurora is burning money,” said Johnson. “Now that the market is realizing the speed at which Aurora is burning cannabis money, we believe the company will run out of money on Jul. 1, 2020.”
Unlike its direct competitor’s Canopy Growth and Cronos, for example, the Group lacks a financially strong partner to back Aurora Cannabis’s stock price.
However, the company’s growth ambitions can hardly be realized without funding, especially as Aurora wants to focus on the U.S. market, where efforts to legalize cannabis at the federal level currently seem to be stalling.
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