Aurora Cannabis is one of the most famous and renowned marijuana stocks available in the market. Although they have gained a good name for themselves in the market, still there is one analyst who still fails to recognize this Canadian cannabis producer.
As per the latest news updates, this week, Gordon Johnson, GLJ Research Analyst placed a sell rating on Aurora Cannabis’s shares. What was shocking, was that he took a bold and rare step of assigning a $0 target price for their stock. Evidently, as per the viewpoint of Gordon Johnson believes that Aurora is bound to fail to cause all the shareholders a loss on their investment.
He said, “Our view that ACB’s equity holds no value is driven by our work, which implies the company is facing a liquidity crunch that will, ultimately, risk its status as a going concern.”
As per him, Aurora is going to face a liquidity crisis next year. Explaining his point of view, he said that this would be the result of the company’s ongoing losses which in turn will make it difficult for them to borrow money from the banking partners. He also added that Aurora could run out of the cash before it could make any profit.
Johnson said, “As the pace at which Aurora Cannabis is burning cash becomes clear to the market, barring additional resources from the capital markets, our work suggests the company will run out of cash before 7/1/20.”
Following his prediction, he also mentioned that it won’t be easy for the company to find its way out of the heavy debt that they are under. A litany of issues have weighed on the entire cannabis industry and affected its growth including the delays from regulatory, slower than expected retail store openings, as well as the black market competitions.
In addition to all these factors, the supply glut in Canada at present is also making Aurora’s production leadership less meaningful. He also added the risks that come from Aurora’s using its operating assets as collateral for its borrowings. It was in August when Aurora obtained $160 million Canadian in additional credit from a syndicate of leaders that was led by Bank of Montreal by putting its assets as collateral.
In case, Aurora fails to pay back this debt, it could lose many of its key productions making it even more difficult to raise profits any time soon.
A Possible & Smart Solution
Aurora has been seen reluctant to sell a sizable equity stake to any larger business, although, many of its rivals have already done that understanding the present market scenario. Canopy Growth (NYSE: CGC) raised $4 billion when they sold nearly 40% of its business to beer giant Constellation Brands (NYSE: STZ) (NYSE: STZ-B), also Cronos Group (NASDAQ: CRON) has raised $1.8 billion by selling 45% of its stake to tobacco giant Altria (NYSE: MO). Like them, Aurora can also raise a significant amount of capital if it comes on board with the idea of selling its equity.
A Point Of View of Other Analysts On Aurora Cannabis
As per the information shared by Wall Street Journal, Like Johnson, every other analyst also agrees with the point of view. Out of 19 analysts, 10 of them rate it a buy while 7 rates it holds and only 2 have assigned sell rating. The average price target for Aurora’s shares is $3.95 as per the analysts, and it is 75% higher than the current price.
In case Johnson’s prediction stands correct, Aurora Cannabis could go under. Presently, their shares are down by 55%.
