When a company shows you who they are, believe it.
I've talked endlessly about Aurora Cannabis' (ACB) use of stock to maintain its habit. The company continues to rely on share issuance after share issuance to survive. It has reached a point where the business has almost reached the point of being a hobby thanks to continued losses.
Aurora falls into the category of expanding too far, too fast with an arrogance some mistaked for confidence a few years ago. Initially, I fell into that trap. The stats and projections around Aurora Sky were glorious. Then, I attended an Aurora presentation in Chicago with my former colleague here, Bob Byrne.
The presentation itself was fine, filled with basic info and the same hockey stick projections lots of cannabis companies made. It was the Q&A session though that first soured me on Aurora. I even wrote about it here shortly after it happened.
The question revolved around competition. The company essentially dismissed the notion of competition because of its massive size. Ironically, at the same conference, KushCo (KSHB) did a similar dismissal because of its head start in niche packaging.
This speaks volumes. And, yes, I wrote about my KushCo concerns as well around the same time.
No, we can't go back to those points in time and sell, but ACB reminds us yet again who they are. They flashed a $125 million offering last night but wound up selling $150 million worth of stock at $7.50. This stock was above $14 earlier this week. ACB added warrants at $9.00 that don't expire for 40 months for another 20 million shares. That means if the stock pushes above $9, there's a good chance the warrant holders will exercise and immediately sell to grab profits. They won't likely do it at $9.50 or $9.75, but any spike will get sold. This is a trade-only name.
Given they reported a cash balance of $250 million as of November 6, 2020 but now raised another $150 million days later, speaks volume as to when the company believes it will be cash flow positive.
Look around. Who needs money? We know Aurora does. Other cannabis companies will as well, but not all of them. Airlines need cash. Without a government bailout, cash will be needed as traveler return is still unknown. Hotels, restaurants, leisure, entertainment, office REITs -- they all fall into the category of potentially needing cash. While many have rallied and made great trades, be certain to understand the financial position of names you hold. The market is still perfect for raising cash, and some names need tens of millions, hundreds of millions, or possibly billions.
In short: Tread carefully so you don't get hit with a dilutive offering well below the market. Know what you own and what they need.
