The Edmonton-based cannabis producer said in a news release on Tuesday that it has exhausted its current at-the-market (ATM) program, having drawn down what was left of the US$183 million remaining in the equity facility in the last 30 days.
The company did not specify what type of securities it will use to raise the new funds, and said it will spell out how it plans to use the proceeds in a future filing with regulators.
Cantor Fitzgerald analyst Pablo Zuanic slashed his 12-month price target on Toronto-listed Aurora shares from to $7 from $18, and lowered his rating from “overweight” to “neutral,” calling Tuesday’s announcement “contrary to expectations and guidance.”
Given longstanding concerns about the strength of Aurora’s balance sheet, Jefferies analyst Owen Bennett said it’s unsurprising the company is looking to raise funds. He said even if Aurora hit its latest target of achieving positive EBITDA in fiscal 2021, the company was at risk of under investing in the business without raising additional funds.
“What is surprising is the size of the possible raise and the dilution that comes with this,” Bennett wrote in a note to clients on Monday. “Exhaustion of the ATM would have already represented [approximately] 26 per cent dilution, while full use of the US$500 million would be an additional [approximately] 50 per cent based on the current share price.”
Aurora said on Tuesday that it currently has available cash resources of approximately $272 million. Bennett said the company’s top priority should be investment in the United States CBD market, given the rapidly approaching U.S. presidential election could prove a pivotal moment for broader cannabis policy changes in that country.
“It needs to establish a strong CBD business, and U.S. infrastructure, ahead of this, and then be prepared to invest in cannabis if any laws change. With most institutional money likely to be focused on U.S. names should we see legalization, if Canadian names can't argue a strong case for competitiveness, they may struggle to catch a bid,” he wrote.
Toronto-listed Aurora shares fell 5.18 per cent to $5.49 at 12:39 p.m. ET on Tuesday.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.