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Why Aurora Cannabis Stock Sank Friday

By Howard Smith - May 14, 2021 at 10:07AM

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The company slid an announcement concerning a new share offering at the bottom of its quarterly financial report.

What happened

Canadian cannabis company Aurora Cannabis (ACB -3.01%) reported fiscal third-quarter 2021 results yesterday, and investors are reacting by selling off the stock today. As of 10:05 a.m. EDT, Aurora shares were down more than 6%, after an initial 10% drop to start Friday's session. 

So what

Financial results were down from the prior-year period, similar to other Canadian marijuana companies. Pandemic-related restrictions have affected sales for the entire industry.

But Aurora also included an item at the bottom of the news release that may have surprised investors. Though the company highlighted the fact that its balance sheet remains strong with about $525 million in Canadian dollars ($432.4 million) in cash on hand as of May 12, it announced that it will file to raise another $300 million in U.S. dollars through an equity offering. 

marijuana leaf over stock board with red down arrow

Image source: Getty Images.

Now what

Aurora reported that total net revenue decreased 25% in its fiscal third quarter, compared to the prior-year period. Cannabis net revenue dropped 21%, driven down by a 53% plunge for its consumer products. Medical cannabis, however, saw a 17% jump in sales year over year. 

CEO Miguel Martin said the relatively strong performance in Canadian medical cannabis sales was crucial as it "should translate into global adult-use success in the future as medical regimes evolve to adult-use markets."

But investors are likely focused today on the announcement of the filing for additional share sales. The at-the-market (ATM) offering is intended to increase flexibility, according to the company, adding "it is not expected to need to access the ATM facility without an accretive use of proceeds." The company also said it will move its U.S. listing from the New York Stock Exchange to the Nasdaq exchange as of May 24, seeking cost efficiencies.

But in combination with continued pressure on the business itself, shareholders aren't taking kindly today to the prospect of additional share dilution, which is likely what is knocking shares down today. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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