Aurora Cannabis (CVE:ACB) has 332mm shares outstanding, so the warrants would increase the number of shares outstanding by 7.5%
SmallCapPower | June 8, 2017: Today we take a look at Aurora Cannabis Inc. (TSXV: ACB), which has a significant number of in-the-money warrants that are exercisable soon.
A warrant is a financial instrument that gives investors the right to purchase shares in a company at a fixed price until a certain date. They differ from options as a company must issue new shares when a warrant is exercised, thus diluting the earnings per share (EPS) the company generates, as there are now more shares to which the earnings are allocated. Although warrants can be helpful to companies seeking to raise capital, we find it important to inform investors about the dilution factor. Thus, we have started the Warrant Watch, where we inform investors about companies that have a significant amount of warrants outstanding to the point where it could materially affect the stock price.
Aurora Cannabis (TSXV: ACB)
Aurora Cannabis is currently trading at $2.02 per share as at market close, June 6, 2017. They reported Q3/2017 earnings on May 15, 2017. They currently have 25mm warrants outstanding, many of which are deep in the money, and exercisable soon.
The Company has 332mm shares outstanding, so the warrants would increase the number of shares outstanding by 7.5%, which should materially affect the stock price if exercised, as these investors would likely sell the shares right away, putting pressure on the stock price. Take note that for companies such as Aurora Cannabis, who reported a net loss for the nine months ended Q3/2017, the dilution would make the Company look better! This is because the loss is distributed over more shares so the loss per share is smaller. This is not a good thing, however, due to the pressure put on the stock price, and the decreased ownership stake forced upon investors.
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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