Aurora Cannabis Inc. (ACB) made waves on Wednesday morning when it announced Nelson Peltz as a "strategic advisor."
It's easy to understand the excitement behind the move by the Canadian company.
A consummate deal maker, Peltz brings a ton of experience and plenty of contacts. He currently serves as a director for The Procter & Gamble Co. (PG) , Sysco Corp. (SYY) , and The Madison Square Garden Co. (MSG) , plus is the non-exec chairman of The Wendy's Co. (WEN) .
The potential tie-ins from ANY of these companies with possible future products derived from cannabis is huge. The health and beauty supplement business from the Edmonton-based ACB could be one of the biggest winners over the next decade. It's possible we'll see food crossovers as well.
This move has the potential to propel Aurora to the negotiating table in JVs, or could make it an enticing target for one of Peltz's current or former connections.
In exchange for his role, Peltz received options to purchase 19,961,754 common shares at CAD$10.34, roughly the closing price Tuesday.
Given the move Wednesday, that's a cool $20 million already.
Still, it's important to note those shares vest over four years, so it isn't as if Peltz could exercise and cash in those shares tomorrow.
This does hint at one concern I have about ACB. The company hands out shares like a big-hearted grandma with an unlimited supply of hard candy. After recent transactions settle, ACB is going to have more than a billion shares outstanding. The greater the number of shares, the more difficult it can be to move the needle.
Don't get me wrong, I like ACB. The company is a beast. There won't be another producer that will sniff what ACB can produce. While Canopy Growth Corp. (CGC) and Tilray, Inc. (TLRY) continue to steal the headlines, Aurora may actually be top dog.
The shares are breaking out Wednesday with a strong move above recent resistance. The $8.00 - $8.25 area should become new support with $7.50 as secondary support.
A close under $7.50 and I'd be concerned bears were in charge, paving a path to the $6s.
ACB has entered a bit of a vacuum here. Traders from October still holding shares are begging to exit at a break-even or close status. Those buying from November onward are enjoying strong gains, but it is important to note that only buyers of the past six weeks have rarely been down much in the stock. Watching a position drop, even if it recovers, weighs on the psyche of investors.
In short, I don't expect this to be a clear or easy climb to the $10 area, but I do believe the new trading range for the stock will be $7.50-$10.75, which favors buyers even here. I'm of the notion to see if we consolidate for a few days and look for the opportunity to buy closer to $8. For those that don't want to wait, ACB has a fantastic options market, and selling out-of-the-money puts month-to-month has been a favorite approach for me.
Overall, despite not loving that more shares are being issued, I find the move to add Peltz a strong one. ACB is pushing the cannabis business hard and fast, but with more experienced names coming into the advisory role, it should emerge as one of the big cannabis winners.
Aurora Cannabis is a holding in TheStreet's Stocks Under $10 portfolio. Click here to learn more about this portfolio, trading ideas and market commentary product.
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