The marijuana stocks have experienced a roller coaster ride since last couple of years. If we look back in 2018 then even the smallest company having unproven business models were on steep if they have ties with cannabis. Now there is as much pessimism as there was optimism back then and this could be demonstrated with its current situation. This cannabis stocks have carried out a 12-to-1 reverse stock split as on Monday, after the shares tumble so massively that the New York Stock Exchange warned to drop the stock from the listing.
Aurora Cannabis (NYSE:ACB) is one of the most renowned company for its marijuana stocks which has climbed stairs of success in recent years.This marijuana stocks was a popular investment which amid amid a huge pool of investors back then and have proved wisely to all the industry challenges but earlier this week the price of this stock topple down below $1 per share making it a just a penny stock.
The shares of company plunged drastically from $9 all around in early 2019 to close at 69 cents on Thursday making it just another penny stock.The company has failed immensely to prosper profitability and achieve the targets. With topple down of shares steadily even the value oriented cannabis investors wonder whether they should bet in this stock play or not.
Aurora has said that ” It would grant shareholders on share for every 12 currently otstanding which will reduce the amount of shares from more than 1.3 billion to roughly 110 million.” On Monday when this consolidation of shares will take place the investors of this company will seem to have a massive payday as shares seems to gain more than around 1000% before the market data is validated into the newly consolidated share count.
As this marijuana stock company is planning to compress 12 shares into one,its actually planning instead of paying cash for the left over shares it will round up or down the shares to the nearest whole share. There are a lot of difficulties and challenges that this company needs to face to succeed in future. Some of them include:-
- Extensive losses :- In second quarter ending on 31st Dec., Aurora witnessed loss of 1.33 billion Canadian dollars which was majorly from the impairment charges against its assets. In addition to this CA $120 million operating losses faced by Aurora make it far from acquiring a consisting profitability and achieving the targets.
- Notable Debt:- Aurora has a sum of CA $600 million debt wherein $300 million is related to the current and long term debentures and another CA $300 million was for loans and other borrowings. Around CA $156 million is for cash and cash equivalents which will lead to creation of lots of issues related to cash flow and debt obligations for the company.
- Difficulty in future:- As already the company is facing bad situation and doesn’t have much goodwill in the market because of relying on the secondary stock. Thus in future as well if the company need financing then it will be quite a difficult scenario. Also selling the stocks at current prices make it difficult for the investors to recover their losses.
- Required NYSE delisting:- As per the terms and conditions Aurora needs to avoid sinking of the stock below $1 share price for a time frame of at least 30 days if it wants to avoid delisting. For this company has undergone reverse stock split which would act as a dark spot for the company.
The difficulty that the company is undergoing doesn’t end here as it further wants to generate cash by selling all around $350 million in the open market. The company is going on a tough road and it will be difficult for the company to retain its position.
Consolidation of shares would impact the employees as well who are holding the shares of the company as they need to sells the shares at revised price once the reverse split is complete. Thus it means that there will be a variation in the value in options and price at which the shares could be sold by the employees.
Thus this cannabis company have a long road to go through and if the stocks regained its value then company doesn’t need to face the baggage of penny stock status. The reverse split of marijuana stock will state the turnaround that the company will face now.