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Aurora Cannabis Is Selling Stock To Pay Off Debt: Why Tilray And Canopy Could Be Next In Line
Earlier this month, Aurora Cannabis (NASDAQ:ABC) reported its second-quarter financial results, revealing a 10% decline in total net revenue, which totaled slightly over $60 million, and a $75.1 million loss.
The company’s CEO Miguel Martin touted a sequential improvement of $2.5 million in adjusted EBITDA, with the company remaining on a trajectory towards the profitability goal and a focus on further cost reductions.
However, New Cannabis Ventures’ Alan Brochstein says that the most interesting part of the company’s recent earnings report was “its aggressive use of its at-the-market (ATM) facility subsequent to the end of the quarter.”
Aurora sold 19.6 million shares at an average price of $4.58, raising $89.7 million to fuel its “aggressive” approach, disclosing that it has purchased another CA$13.4 million ($15.09 million) of debt at a steep discount following the quarter-end.
At the end of the second quarter, the company had more than CA$332 million unrestricted cash, but it also had CA$432 million of convertible debt, due in three years. During that period, it repurchased CA$7.1 million at a discount.
Considering a revenue drop and wider operating losses, Aurora is “prudent to sell shares in the market above tangible book value, especially in light of the situation at HEXO Corp (TSX:HEXO) (NASDAQ:HEXO),” Brochstein explained.
Moreover, with other cannabis LPs facing similar challenges, “we believe that investors should expect Canopy Growth and Tilray to sell shares in 2022 to shore up their respective balance sheets ahead of large debt maturities,” he added.
Canopy Growth Corporation’s (TSX:WEED) (NASDAQ:CGC) third-quarter financial report revealed that debt which amounted to CA$1.5 billion, now exceeds cash, totaling CA$1.4 billion, in addition to an 8% decrease in net revenue of $141 million.
The Canadian giant also wrapped up 2021 with the sale of its German subsidiary C³ Cannabinoid Compound Company GmbH, to Dermapharm Holding SE, for EUR 80 million ($90.24 million), which will “offset the likely continued drain of its operations on its cash balances,” Brochstein noted.
“The dwindling cash and limited prospects for achieving substantial cash generation would leave the company in a very vulnerable position ahead of the 2026 maturity of its CA$900 million credit facility,” he said, adding that it “requires a minimum liquidity of $250 million.”
With analysts suggesting that Canopy won’t be able to achieve positive adjusted EBITDA in the following three years, the refinancing of the debt could be questionable.
“While its stock is trading near a 5-year low, we think it makes sense for the company to sell stock, as it currently trades at 2X tangible book value despite projected losses ahead and looming debt maturities,” Brochstein said.
Meanwhile, it seems that Tilray Inc. (NASDAQ:TLRY) is following suit with a substantial amount of debt relative to cash.
In November, the Canadian cannabis giant posted its second-quarter financial results, revealing a 20% year-over-year uptick in revenue and a slight sequential decline to $155 million. Adjusted EBITDA was $13.8 million, representing 8% growth compared to the preceding prior quarter and making for the eleventh consecutive quarter of positive Adjusted EBITDA.
While the company ended the quarter with $332 million, it reported total debt of $738 million, including two convertible notes -$278 million due in 2023 and $260 million due in 2024.
Moreover, its cash balance dropped by $150 million in the six months of the fiscal year, out of which $110 million was consumed by its operations.
Brochstein said that the “circumstances are not as challenging for Tilray” as for its industry peer Canopy Growth, even though it is “very dependent on an increasing stock price to cover the 2023 debt maturity unless they are able to borrow more.
“When we interviewed its CEO, Irwin Simon, last August, he expressed hope that the company would see its 2024 debt converted into stock, but its stock has declined from $14 to $6 since then,” noted Brochstein.
In addition, Simon revealed that the company could use an ATM, but this would likely be to help fund its M&A.
Aurora Cannabis’ move in January “may be a precursor to stock sales by other large LPs,” Brochstein said, citing Canopy Growth and Tilray.
Considering that the business didn’t scale as predicted and thus failed to support the current levels of debt, “the pending debt maturities next year will weigh heavily on investor sentiment,” Brochstein concluded.
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Florida Chooses BioTrack as the State’s Cannabis Track and Trace System
Newton, PA – (NewMediaWire) – February 28, 2022 – Forian Inc. (NASDAQ: FORA), a leading provider of technology, predictive analytics and data science driven software solutions for the healthcare and cannabis industries, announced that the State of Florida Department of Health Negotiators have unanimously voted to choose BioTrack as the track and trace system for the Florida Department of Health’s Office of Medical Marijuana Use. This vote was affirmed by the Department of Health’s Notice of Intent to Award, which can be found HERE .
Florida plans to use the BioTrack inventory tracking system to monitor the movement of cannabis products in the state’s medical-use cannabis market, while providing a real-time inventory of cannabis products available in Florida and preventing the unlawful diversion of products.
BioTrack’s software will track cannabis in Florida from when it is first planted as a seed to the point-of-sale to the patient – without additional costs to Florida businesses. All licensed medical marijuana cannabis establishments are required by Florida law to participate in the tracking system and log the movement of cannabis as it is grown, manufactured into other products, packaged, tested, and sold to qualifying patients. BioTrack’s state-of-the-art traceability system will also help recall cannabis plants and products deemed as unsafe or adulterated, and prevent adulterated and regulated materials from reaching the black market.
“We are very excited to welcome Florida to the growing number of states that have chosen BioTrack’s technology for their cannabis-related initiatives. We look forward to our partnership with the state to provide real-time visibility and transparency on market activities,” said Moe Afaneh, VP of BioTrack.
BioTrack’s point-of-sale software is used by customers in 38 states and 10 countries, while 10 state governments in addition to Florida, currently use BioTrack products.
Forian Inc. provides a unique suite of SaaS solutions, data management capabilities, and proprietary data and analytics to optimize operational, clinical and financial performance for customers within the traditional and emerging life sciences, healthcare payer and provider segments, as well as cannabis dispensaries, manufacturers, cultivators and regulators. For more information, please visit the Company's website at www.forian.com .
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