Analyst Christopher Carey estimates the Edmonton-based cannabis producer could be cash-negative as early as the first three months of 2020, absent additional financing.
“Aurora is burning cash. To be clear, so are peers. However, unlike peers, like Canopy Growth (WEED.TO)(CGC) and Cronos (CRON.TO)(CRON), both cash rich following equity investment from large consumer companies, Aurora's cash position is less robust,” he wrote in a research note on Thursday.
Canopy Growth announced a $5-billion dollar equity investment from Corona-beer maker Constellation Brands Inc. (STZ) last August. Tobacco giant Altria Group Inc. (MC) invested $2.4 billion in Cronos in an equity deal announced last December.
Aurora has long been rumoured to be in talks with major consumer packaged goods brands, including The Coca-Cola Company (KO), but a deal has yet to materialize.
In March, the company appointed Nelson Peltz as a strategic advisor. The CEO and founding partner of Trian Fund Management L.P. has held senior roles at The Procter & Gamble Company (PG), Sysco Corporation (SYY), and Mondelēz International (MLDZ).
Bank of America’s Carey lowered his rating on the stock to “neutral” from “buy,” and dropped his price target on Toronto-listed shares to $11 from $13. Shares fell 5.58 per cent to $9.14 at 1:07 p.m. ET.
Carey notes Aurora has access to about $100 million in a credit facility, but a convertible note that matures in the first quarter of 2020 will likely need to be paid in cash, barring a surge in company’s share price.
Aurora has four production facilities under various stages of construction or expansion, with about 1.35 million new square feet of facility space in Canada, Denmark and Portugal.
Applying the cost math behind the company’s flagship Aurora Sky facility, Carey expects the company will need up to $270 million to get the job done, plus an addition $100 million per year in maintenance expenses.
“We believe Aurora is most interested in raising capital via an investment from a partner company, namely an equity investment,” Carey wrote.
“While clearly the longer ACB goes without funding, the higher the risk to cash/need to delay projects, this isn’t our base case. Even without an equity deal, ACB’s scale/asset base should be allow it to plug financial gaps,” he added.
“However, at this early stage of development, when first mover advantage is key, raising capital from a defensive position rather than from untapped opportunities (like U.S. CBD) is less ideal.”