With so much cash on the books, Aurora Cannabis Inc. (TSE:ACB) could be looking at a strategic acquisition as pot producers will need to ramp up production to meet an expected supply shortfall
SmallCapPower | October 17, 2017: Aurora Cannabis Inc. (TSX:ACB) announced recently a $50 million bought deal equity financing that was immediately up-sized to $60 million. The up-sized amount was released after the Company revised its agreement with a syndicate of underwriters led by Canaccord Genuity Corp. Then on October 16, 2017, Aurora Cannabis said it would raise a further $6 million. The Company said the most-recent private placement was a one-time special accommodation for the benefit of its underwriters, due to “very significant demand for the Bought Deal.” Indeed, investor interest in the Canadian marijuana space appears to be heating up ahead of the proposed July 1, 2018 legalization date.
In the original equity deal, Aurora Cannabis offered 20 million common units of the Company at $3.00 per share. Additionally, Aurora Cannabis has granted the underwriters an option to purchase additional three million units in case of over-allotment.
Net proceeds will be used to further execute Aurora’s aggressive growth plan before recreational marijuana legalization arrives by July 2018, as well as to fund its international expansion program in Germany and Australia.
Post the deal, Aurora Cannabis will have in excess of $220 million in cash, a significant liquidity boost to fund future growth plans. On the flip side, the ambitious growth plan and subsequent capital-raising programs, could significantly dilute the current shareholders’ interests in the Company.
With so much cash on the books, Aurora Cannabis could be looking at a strategic acquisition as pot producers will need to ramp up production to meet an expected supply shortfall once cannabis becomes legal recreationally in less than a year’s time. Aurora Cannabis already has a nearly 10% stake in extraction technology company Radient Technologies Inc. (TSXV:RTI), and is in the process of completing an investment in Edmonton-based Hempco Food and Fiber Inc. (TSXV:HEMP) for an ownership stake of up to 50.1%.
Aurora Cannabis currently trades at TTM Price-to-Sales ratio of 60.67x, which is high and common among other players in the nascent marijuana industry. Even at such valuations, investors are eagerly investing in this marijuana producer, which has produced over 8% returns in the past month and has the potential to provide monster returns for investors heading into recreational legalization.
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