What happened

In the first half of the Monday trading day, most of the stock market was up (the S&P 500, by the greater part of a full percentage point) -- but Aurora Cannabis (NASDAQ:ACB) was not. The marijuana stock was down by about 4.9% as of 1:23 p.m. EST.

We can blame investment bank Jefferies & Co. for some of that decline.

Stock arrow climbs up and then goes back down

Image source: Getty Images.

So what

Citing "a post US election period in which at one point the ACB had gained 135%, not on fundamentals, but retail FOMO/hedge fund squeeze" (i.e. short-sellers feeling forced to buy the stock necessary to cover their positions at higher and higher prices), Jefferies declared Monday morning that "the valuation is too stretched" on Aurora Cannabis stock, and downgraded it to underperform (i.e., sell).

As Jefferies analyst Owen Bennett explained, not only were Aurora Cannabis's fiscal first-quarter 2021 numbers awful (sales down 10% year over year, $81 million in net losses, and $93 million in cash burned), but the company moved to replace its lost cash by selling 20 million new shares, diluting existing shareholders in the process. 

Now what

As bad as things look already, Bennett worries that they could still get worse. He sees it as entirely possible that Aurora Cannabis will continue creating and selling shares over the next 12 to 18 months, warns StreetInsider.com. And the more stock it sells, the more its shareholders' stakes will be diluted.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.