Finance

Aurora Cannabis stock might be facing a total crash

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.

The Aurora Cannabis stock has lost about half of its value in the course of the year. (Source)

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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(Featured image by vjkombajn via Pixabay)

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This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.

First published in finanzen, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Valerie Harrison

Valerie Harrison is a mom of two who likes reporting about the world of finance. She learned about the value of investing at a young age upon taking over her family's textile business when she was just a teenager. Valerie's passion for writing can be traced back to working with an editorial team at her corporate job, where she spent significant time working on market analysis and stock market predictions. Her portfolio includes real estate funds, government bonds, and equities in emerging markets such as cannabis, artificial intelligence, and cryptocurrencies.

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