Aurora Cannabis will voluntarily convert 5% unsecured convertible debentures into common shares. A total of 69,135,117 common shares will be issued at a conversion price of $2.47 (CA$3.28). For investors, it may look painful. Aurora Cannabis closed the September quarter with $115 million (CA$153 million) in cash and raised cash to fund these major capital expenditure projects for the year.
Before the quarterly report in September, analysts questioned Aurora Cannabis’s stocks. The main problem was a large convertible debt due in March that would weigh on the shares.
The recent decision to convert almost all bondholders into common stock has been a painful dilution for existing shareholders, but it is necessary for Aurora Cannabis to be able to attract new investors.
The company still has a lot of work to do in order to improve their balance sheets before stocks for Aurora Cannabis will be rated as “buy.” This convertible debt conversion was a key step.
Aurora Cannabis converts their convertible debt
Aurora Cannabis announced that 99% of the $173 million (CA$230 million) principal amount of unsecured convertible debentures due Mar. 9, 2020, have voluntarily elected to convert into common shares.
As a result, the Canadian cannabis company will issue a total of 69,135,117 common shares at a conversion price of $2.47 (CA$3.28).
The company already had more than 1.1 billion diluted shares. For investors, dilution is even more painful given that the stock already exceeded $10 earlier this year.
At a share price of $2.50, the fully diluted market capitalization is approximately $2.6 billion.
Where does that leave the stocks for Aurora cannabis?
The big question is where stocks for Aurora Cannabis is going with the stock reduced to $2.50 and the crucial convertible debt managed.
Operating losses, combined with capital expenditure requirements, remain significant, despite the cessation of spending on their two main facilities.
Aurora Cannabis closed the last quarter ending on Sept. 30, with $115 million (CA$153 million) in cash on their balance sheet.
When combined with previously completed market equity offerings, Aurora has raised sufficient cash to fund these major capital expenditure projects for the year.
The problem remains, as ongoing operating losses must be fully funded. The company has many options, including the sale of assets with facilities and assets of $732 million (CA$973 million).
Also, additional investments of $86 million (CA$115 million) or new equity investments through ATMs, among others.
Other options for Aurora Cannabis stocks
Of course, the other option is to reduce EBITDA losses adjusted for the significant loss of FQ1 by $25.6 million (CA$34 million) to reduce financing requirements.
This probability of reducing losses seems low in the short term, as Aurora Cannabis invests in the deployment of “Cannabis 2.0” in Canada and the CBD market in the United States.
Potential investors will likely wait until the additional financing is resolved and the Canadian market further rationalizes supply while demand is driven by Cannabis 2.0.
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