Early this session, Aurora Cannabis Inc (TSE:ACB) (OTCQB:ACBFF) (FRA:21P) entered single-digit territory as prices plunged to $9.95/share at the open. Overall, it’s been a miserable last couple of weeks for the cannabis bellweather, shedding around 16.94% (peak-to-trough) from the March 6 swing high. We examine some base causes for the dysphoric sentiment, and possible catalysts which may allow Aurora to perk back up again.
Broadening out our timescales a little bit, the genesis for Aurora’s descent from $15/share began in late January, as the destruction of short volatility derivative complex lead to generalized “risk-off” sentiment in the market. Not only did risk assets get hammered, this destruction was powerful enough to put the S&P 500 into a short-term technical correction.
Prior to this event, the market hadn’t had even a 5% selloff since England’s ‘Brexit’ vote in June 2016. Although the phenomenon affected American markets mainly, anything cannabis-related entered the wood chipper. Risk-off sentiment affecting U.S. cannabis stocks had seeped northward.
Unlike the rest of the sector, however, Aurora Cannabis also announced a major acquisition at the time. While the deal was generally warmly received by investors, it was undoubtedly dilutive.
The February 5 Improved Offer provides CanniMed Shareholders with the right to elect to receive for each CanniMed Share (i) 3.40 Common Shares; (ii) $0.43 in cash; or (iii) any combination of Common Shares and cash. Assuming that shareholders elect the cash alternative, each CanniMed shareholder would receive $5.70 in cash and 2.9493 Aurora Shares for each CanniMed Share. Regardless of outcome, between 72-84 million new common shares will be issued.
Keep in mind, the longer Aurora Cannabis stock trades below the $12.65 volume-weighted average share price used in the revised offer, the greater the chances CanniMed shareholders will accept the cash portion of the deal. That may save dilution now (towards the 72 million