Shares of Aurora Cannabis Inc. plunged 17% in Wednesday’s pre-market session after the Canadian cannabis producer announced plans to raise $125 million through a public offering. The stock closed 26% lower on Tuesday.
According to the prospectus, Aurora (ACB) will sell units of the company at a price of $7.50 per unit. Each unit will consist of one common share of the company and one half of one common share purchase warrant of the company. Each warrant will be exercisable to acquire one common share of the company for a period of 40 months following the closing date of the offering at an exercise price of $9 per warrant share.
The final terms of the offering will be determined at the time of pricing, the company said. In addition, Aurora will grant the underwriters a 30-day option to purchase up to another 15% of the units offered in the proposed sale under the same terms and conditions. This option may be exercised by the underwriters for additional units, common shares, and warrants.
Aurora disclosed that it expects to use the offering’s net proceeds to fund growth opportunities, working capital and other general corporate purposes. BMO Capital Markets and ATB Capital Markets are acting as the bookrunners for the offering.
The offering announcement comes after Aurora shares exploded 68% in the past five days. Investors piled into the stock as some US states decriminalized cannabis and in the runup of Joe Biden winning the US presidency, which is perceived as a positive for further legalization. (See Aurora stock analysis on TipRanks).
Meanwhile, Needham analyst Matt McGinley on Nov. 9 reiterated a Hold rating on the stock saying that “funding operating losses with equity issuance is not a viable strategy, and ACB needs to demonstrate that it has the capacity to generate cash.”
“The good news for ACB is that the Canadian adult-use market is finally growing at a healthy pace; the bad news is that ACB needs to work through its product issues in short order to stop cash operating losses,” McGinley wrote in a note to investors. “While we don’t mean to sound too dire in framing ACB’s prospects, simply put, a lot needs to go right in the next few quarters to put ACB on a sustainable path.”
Overall, Aurora stock has a Hold analyst consensus showing 13 Holds vs. 1 Sell. With shares down 68% so far this year, the average price target stands at $8.14, which puts the downside potential at a moderate 1.9% over the coming year.