Earlier this month, Aurora Cannabis (NASDAQ:ABC) announced its second quarter financial results, showing a 10% decline in total net revenue, which totaled just over $60 million, and a loss of $75.1 million.
Of the society CEO Miguel Martin touted a $2.5 million sequential improvement in adjusted EBITDA, with the company stay on a trajectory towards the profitability objective and a focus on further cost reductions.
However, Alan Brochstein of New Cannabis Ventures says that the The most interesting part of the company’s recent earnings report was “its aggressive use of its in-market (ATM) facility post-quarter end.”
Dawn sold 19.6 million shares at an average price of $4.58, raising $89.7 million to fuel his “aggressive” approach, revealing that he bought Additional CAD $13.4 million ($15.09 million)) debt at a steep discount after the end of the quarter.
At the end of the second quarter, the company had over C$332 million in unrestricted cash, but he also had C$432 million in convertible debt, due in three years. During this period, he redeemed C$7.1 million at a discount.
Given lower revenues and higher operating losses, Aurora is “cautious about selling shares in the market above tangible book value, especially in light of the situation at HEXO Corp. (TSX:HEXO) (NASDAQ:HEXO),” Brochstein explained.
Additionally, with other cannabis LPs facing similar challenges, “we believe investors should expect Canopy Growth and Tilray to sell stock in 2022 to shore up their respective balance sheets ahead of major debt maturities,” he added.
Canopy Growth Society(TSX:WEED) (NASDAQ:CGC) third quarter financial report revealed that debt, which stood at C$1.5 billion, now exceeds cash, totaling C$1.4 billion, in addition to an 8% drop net revenues of $141 million.
The Canadian giant has also concluded 2021 with the sale of its German subsidiary C³ Cannabinoid Compound Company GmbH, to Dermapharm Holding SE, for 80 million euros ($90.24 million), which “will offset the likely continuous drain of its operations on its cash balancesBrochstein noted.
“Dwindling liquidity and limited prospects for substantial cash generation would leave the company in a very vulnerable position ahead of the 2026 maturity of its C$900 million credit facility,” he said, adding that it “requires a minimum liquidity of $250 million”. ”
With analysts suggesting Canopy won’t be able to achieve positive Adjusted EBITDA in the next three years, debt refinancing could be questionable.
“As its shares are trading near a 5-year low, we believe it makes sense for the company to sell shares, as they are currently trading at 2X tangible book value despite expected losses ahead and impending debt maturities,” Brochstein said.
In the meantime, it seems that Tilray Inc. (NASDAQ:TLRY) follows suit with a substantial amount of debt to cash.
In November, the Canadian cannabis giant released its second quarter financial results, revealing a 20% year-over-year revenue increase and slight sequential decline to $155 million. Adjusted EBITDA was $13.8 million, representing growth of 8% over the prior quarter and representing 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 bonds -$278 million maturing in 2023 and $260 million maturing in 2024.
Moreover, his the cash balance fell by $150 million in the six months of the fiscal year, $110 million of which was consumed by its operations.
Brochstein said that the “circumstances are not as difficult for Tilray” as for its industry counterpart, Canopy Growth, even if it is “very dependent on a rise in equity prices to cover the debt maturity in 2023, unless they are able to borrow more.
“When we interviewed his CEO, Irwin Simonlast August, he expressed hope that the company would see its 2024 debt converted to stock, but its stock has fallen from $14 to $6 since then,” Brochstein noted.
Additionally, Simon revealed that the company might use an ATM, but it would likely be to help fund its merger and acquisition.
Aurora Cannabis’ move in January “could be a precursor to stock sales by other major LPs,Brochstein said, citing Canopy Growth and Tilray.
Considering that the company has not performed as expected and has therefore failed to sustain current debt levels, “pending debt maturities next year will weigh heavily on investor sentiment,” he said. concluded Brochstein.
Photo: Courtesy of Benzinga