- Aurora Cannabis Inc's share are on the back foot in both Canada and the US.
- The marijuana firm's financials are its may downers.
- The deepening coronavirus crisis could trigger higher pot consumption and bolster the ACB stock.
Aurora Cannabis Inc (NYSE: ACB in the New York Stock Exchange and TSE: ACB in the Toronto Stock Exchange) is falling once again. At the time of writing, the Canadian pot firm is down only around 1% to C$5.19 in its home market, while shares trading in the Big Apple is down 4.64% to US$3.80.
Is there room for arbitrage on Aurora's stocks? For such a move to work, equities of the Edmonton, Canada-based company would have to rise – and that is not the case. The recent hit to ACB's stock came from Cantor Fitzgerald, an investment bank, which fell out of love with Aurora and cut its rating from overweight to neutral. Moreover, it slashed the target from C$18 to C$7. As mentioned earlier, shares are trading in Toronto at a lower price.
Cantor Fitzgerlad's influential change of heart came after the cannabis company revealed a dismal financial picture. Aurora announced it will tap markets once again, looking to raise some $500 million after depleting a significant chunk of the money it raised beforehand. As of late October, it has only $272 million.
Moreover, the new attempt to raise money seems desperate. The weed company will try to fill the hole in its finances by selling not only warrants, debt securities, and subscription receipts, but also common and even preferred shares. That indicated Aurora is diluting its current shareholders, lowering the value of what they hold – and diminishing their influence.
Some fear that ACB could continue squeezing and eventually turn into Micro-Cap. That would represent a massive fall from grace for a firm once being at the forefront of the pot sector. Back in October 2018, Canada legalized marijuana and the American market was on the path of decriminalization and potentially even legalization.
Apart from the moderate pace that the world´s largest economy has gone in that direction, pot companies struggled with oversupply and competition. Moreover, their valuations began seeming like a pipe dream. Aurora Cannabis is down no less than 90% in the past 12 months. It is nearing a sub-$200 million which would count as a micro cap and put it off the radar of many investors.
ACB Stock Forecast
However, as long as the company is alive, there are reasons to believe the stock could bottom out. First, Aurora expanded its offering by purchasing Reliva , a US-based company focusing on the cannabidiol (CBD) sector. There is substantial room for growth, as anyone walking on America's high streets knows – CBD seems to be everywhere.
Another reason is the surge in US and Canadian coronavirus cases. The world is focused on the second wave of COVID-19 in Europe, and on the US elections. That crowds out concerns about rising infections in North America.
Even if Canadian province premiers and US state governors do not impose lockdowns, consumers may shy away from crowded places and stay more at home. The cold winter which is responsible for keeping people indoors and contributing to spreading the disease – may also boost the consumption of pot.
Refraining from leaving the house means more free time to consume marijuana, and unfortunately, also raises the probability of feeling lonely and even depressed. The result could be a higher consumption of consicence alleviating substances, including products that Aurora Cannabis sells.
Where is the bottom for ACB at which bargain-seekers come in? That is a hard question to answer, yet the knee-jerk reaction to the downside could be followed by an upside correction.
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