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Aurora Cannabis (NYSE:CBA) has a busy year raising cash. He tabled a mixed offer of $ 750 million at the beginning of the month. In mid-January, it deposited an aggregate principal amount of $ 250 million in convertible senior notes maturing in 2024. What does the company do with all this money? And if the markets have continued to accumulate stocks throughout the year, will the shares reward loyal owners?
Increase in debt and dilution of shares
The issuance of convertible notes and the blended offer on tablets will undoubtedly give Aurora a lot of money to grow its business. But the cost to existing shareholders is more related to the dilution of debt and equities. Now, it could still pay off for Aurora and its shareholders if the company uses this money wisely.
In addition, its competitors either raised cash on the stock market or sold part of the company in return for a cash injection. For example, Tilray (NASDAQ:TLRYraised $ 435 million in October, while Cover growth (NYSE:GSC) obtained an investment of Constellation Brands (NYSE:STZ).
Executive Chairman Michael Singer said:
"Although we have no immediate intention to obtain capital under this shelf prospectus, we have introduced this option as a prudent, long-term strategic measure to provide us with flexible access to growth capital. where appropriate, to continue to fulfill our objectives. global expansion and partnership strategy. "
Dilution could bring ACB action
Aurora does not dilute investors if the company signs contracts that add value to the company. Until now, Aurora has bought companies but paid them a fair value.
Last year, in May 2018, MedReleaf was purchased for CDN $ 3.2 billion as part of a transaction involving all shares. Or he expanded his facilities by increasing his capital expenditures. Most recently, on April 10, Aurora expanded the size of its marijuana facility by 33% in Medicine Hat, Alberta.
Acquisitions and investments in production facilities increase the size of the company. This, in turn, increases Aurora's growth potential. Thus, while the markets have voluntarily increased their stocks of cannabis, the high valuation of ACB shares is in favor of the company.
He can use his own stocks to develop his business. This will allow him to catch Canopy. However, he must continue to show results. Previously, Tilray had benefited from a higher valuation, but the weak quarterly results released in March led to a downward trend in equities. The TLRY stock is down 30% last month.
Cannabis companies are trying to increase their size, scale and rate of growth. Only a few of them will grow to become world leaders in the sector. Thus, this small debt offer could allow Aurora to use its balance sheet to go beyond growth.
A word of warning: the short-term risks are high for investors here. Aurora and other cannabis companies are not yet profitable, and revenue growth is driving increasing costs, so caution must be exercised.
Opportunities for Aurora Cannabis
Aurora is a leader in the medical market in Europe and Latin America. It is active on 5 continents and in 24 countries. In addition to the 15 strategic acquisitions completed since August 2016, it has been finalized or is in the process of completing 40 clinical studies. The studies concern more than 71,000 patients.
The production capacity is currently 100,000 kg per year (at the end of the second quarter of 2019). At the beginning of 2019, it forecasts a production of 150 000 kg / year and then more than 500 000 kg / year in mid-2020.
The money raised could accelerate Aurora's lead in the Canadian market. Quarterly revenues are growing almost exponentially, while competitors are lagging behind. As long as the number of registered patients increases and production increases, we must expect the rate of revenue growth to continue.
Aurora's addressable market could expand as it targets Canadian markets for medicine, global medicine, Canadian adults and adults. To date, margins are stable for Canadian markets and, in the case of adults, strengthened by high-end, innovative products. Globally, Aurora needs to capitalize on its start-up advantage of investing in R & D to develop high-margin products.
Take away
Aurora has huge growth potential in the global market, but it will not happen overnight. In the short term, the company now has the cash resources needed to invest strategically. Its value chain will benefit from increased culture and the opening of more points of sale. Although equities hold up, volatility is expected to increase after the release of the quarterly results on May 13th.
At the time of writing these lines, Chris Lau did not hold any positions in the aforementioned titles.
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