Yahoo Finance Aurora Cannabis executive defends convertible debt issue as shares slide
Aurora Cannabis Inc. (ACB.TO) shares have retreated about 15 per cent since the company announced plans to issue US$300 million in convertible senior notes last week, sparking fear of further share dilution among investors.
The market’s forceful response prompted Cam Battley, chief corporate officer at the Edmonton, Alta.-based cannabis producer, to stand up in defence of the offering, framing it as a necessary step towards profitability that will not crush shareholder value.
The notes pay a semi-annual 5.5 per cent per annum cash interest rate and mature on Feb. 28, 2024. Battley said while the securities can be settled in either stock or cash at Aurora’s discretion, the company will opt for the latter.
“We’ve got a high level of confidence with respect to where our revenues are going, and how much cash flow we are going to have. That’s what gives us the confidence that we are going to be able to cash settle either all or substantially all of the amount,” he told Yahoo Finance Canada on Wednesday. “This is really a bridge to profitability.”
Earlier this month, Aurora said the company is on track to achieve positive EBITDA within the next two quarters. However, the company’s sales forecast for its second fiscal quarter fell below some analysts’ expectations.
Aurora has often leaned on its stock to pay for more than 15 acquisitions over the past two-and-a-half years. Most recently, in an all-share transaction valued at approximately $175 million to buy Whistler Medical Marijuana Corporation announced last week.
“We are able to shift gears now, having assembled substantially the assets and capabilities that we believe we need in an intense period of M&A,” Battley said. “We are looking at this as the last raise we need to do before profitability.”
Aurora stated that proceeds from the convertible note offering will support Canadian and international expansion initiatives, future acquisitions and general corporate purposes.
Battley said the notes have the added benefit of engaging large institutional investors in the United States and Canada, as well as some in Europe. Bank of Montreal in Canada and Cowan in the U.S. worked with Aurora on the offering.
Cannabis stocks are notoriously popular with young retail investors, a factor that has contributed to speculation and wild price swings.
Toronto-listed Aurora shares hit an all-time closing high of $15.07 on Oct. 15, 2018, two days before the launch of recreational legalization in Canada. The stock fell 0.24 per cent to $8.26 at the close of Wednesday’s session.
“One thing that will shave some of the volatility off the sector is bringing more institutional investors into it,” Battley said. “(This) security brings in some really high-quality, long-term investors.”
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