Investors never like to hear that a company could take actions that result in possible dilution. But that’s exactly what Aurora Cannabis (ACB) investors heard this afternoon.
The Canadian medical marijuana maker came out with a shelf registration statement, notifying the securities regulators in Canada and the US that it would consider selling up to US$750 million in newly issued common stock as needed over a specified amount of time. If all shares under the new shelf registration are sold, it would result in significant dilution.
Aurora shares closed today at $9.07, down $0.11 or -1.20%
Executive Chairman Michael Singer commented, “Although we have no immediate intention of drawing capital against this Shelf Prospectus, we have introduced this option as a prudent and long-term strategic measure to provide us with flexibility in access to growth capital, if or when required, to continue executing on our global expansion and partnering strategy […] With our recent listing on the NYSE, our successful financing in January 2019 led by U.S. institutional investors, and as we work with Nelson Peltz to explore potential partnership opportunities, this filing is a natural evolution for our company as we rapidly mature into a global and profitable organization.”
These types of filings aren’t uncommon. The ability to fund operations with share offerings is actually one of the main reasons to become a publicly traded company in the first place. The silver lining, if there is one, is that Aurora does appear to be making headway. But today’s news serves as a reminder that obtaining the necessary capital to fund development won’t always be done in a shareholder-friendly manner.
Overall, investors are likely concerned that new diluted ownership from equity financing would increase the risk profile of ACB. However, TipRanks reveals the cannabis stock as one drawing bullish attention on Wall Street. Out of 8 analysts polled in the last 3 months, 6 rate ACB stock a Buy, while 2 remain sidelined with a Hold rating.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
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