Why are Shares of Aurora Cannabis Sliding Lower?

For Aurora Cannabis (ACB) investors, there have been many things to be excited about over the past couple of weeks. On May 14th ACB reported a solid quarter that beat analyst expectations, which resulted in the stock skyrocketing almost 200% in just 2 trading days.  Then on…

May 20th ACB announced that they would be entering the US market by acquiring CBD company Reliva LLC for $40 million.  This led to another rally for the stock.

Yet since then, shares of ACB are trading 13% lower, at about $15.

That’s most likely because of a warning Jefferies analyst Owen Bennett issued on May 22nd.  Bennett sees persistent challenges that ACB continue to face and downgraded the stock.

Bennett said, “Despite a relatively positive Q3, we downgrade to underperform, with the re-rating seen post numbers neither justified nor sustainable in our view. We think near-term sales and gross margin headwinds are not fully appreciated while celebrating a hiatus on further dilution is short-sighted, it inevitably returns again when the balance sheet is addressed. The balance sheet is still in a delicate position, and it is touch-and-go whether Aurora will meet its renegotiated credit facility covenant in Q1. It would not really appear the right time to be making a key move into the world’s biggest market, especially when one considers it will require investment to make it succeed, and the balance sheet does not really grant Aurora that luxury.”

The fact that ACB is yet to announce a permanent full-time CEO following Terry Booth’s departures prompted Bennett to question the timing of the Reliva U.S. CBD acquisition, “A move into the U.S. is arguably the biggest strategic decision for the company right now, and making that decision before anyone is appointed in our view suggests there may not be any hires imminent. This arguably makes the role less attractive now too. Any new CEO is now somewhat tied to this acquisition and tasked with making it work.”

That all being said, Bennett raised his price target on ACB from $8.40 to $10 due to “longer-term optimism.”

ACB has its work cut out for it for the next couple of quarters.  They must…

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