It’s been a rough couple of days for Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB). Over the weekend, Rich received word that ACB stock was headed for zero. While it’s hardly fallen that hard, shareholder are still seeing a lot of red as of this morning.
Since Wednesday of last week, shares in Aurora Cannabis have declined 36%. This is the lowest stock price the company has seen in two years.
To understand how this happened, and to better predict where the stock might go from here, there’s a lot that we’ll have to break down. So let’s get started.
Aurora Cannabis Reports Q1 2020 Earnings
Last Thursday, the company delivered its earnings report for the first quarter of its fiscal 2020. The report revealed a 24% quarterly sequential drop in revenue, including a 33% drop in consumer cannabis revenue. It also showed a greater EBITDA loss of $39.7 million, which was greater than the previous quarter.
In addition, Aurora announced intentions to cancel or delay plans to expand several of its facilities, including its Aurora Nordic 2 facility in Denmark. On top of that, the company converted $230 million in debt into shares in an attempt to conserve cash.
A lot of analysts cut their price targets on ACB stock as a result of the report. According to MarketWatch, Jeffries analyst Owen Bennett said:
“With possible cash pressures evident, announcing ceased construction at facilities despite a press release just 6 weeks ago praising progression, and now EBITDA (and cash) positive looking unlikely this year, it would be fair for investors not to believe [Aurora].”
While it was certainly a disappointment for shareholders, the Q1 report isn’t the only factor driving the stock price down.
News broke early today that no less than two investor rights litigation firms are opening investigations of securities claims against Aurora Cannabis. These firms are seeking to recover losses suffered by Aurora investors.
Both the Schall Law Firm and the Rosen Law Firm are working on legal action. The cases will explore whether or not Aurora issued materially misleading business information to the investing public.
These lawsuits speak to erosion of investor trust in Aurora Cannabis. Not only is the company showing serious losses, it’s suspected of posting misleading information. This will do little to improve the reputation of the cannabis sector, which is already battling with a trust problem.
Where Aurora Cannabis Can Go From Here
According to Stifel analyst W. Andrew Carter:
“The company outlined a robust plan for shoring up the balance sheet. But even with $500 million in established financing resources available, we believe the company’s precarious financial position offers very little room for error. We believe the challenges of the current environment in the category offer little support for cannabis companies dependent on the capital markets.”
One factor that may help improve Aurora’s position is the opening of more retail cannabis stores in Ontario. Ontario is a huge market that’s in dire need of more retail locations. Aurora is well-positioned to capitalize on that need.
Additionally, there’s the launch of the Cannabis 2.0 derivative products to look forward to. Aurora has spent most of 2019 building inventory in anticipation of the legalization of edibles and vaping products.
These factors are sure to drive revenue. However, there’s no telling whether investors will ever fully trust Aurora Cannabis again. As always, we might have to wait a while to see how the market reacts.
What do you think? Is ACB a great buy at these low prices, or should it be avoided like the plague? Let us know your thoughts.
Featured image: Aurora Cannabis