Should Aurora Cannabis Stock Investors Be Concerned About This?

Should Aurora Cannabis Stock Investors Be Concerned?
iStock.com/Koonsiri Boonnak

ACB Stock Investors Should Pay Attention to This

The U.S. stock market had a solid trading session on September 4, with the Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq Composite all ending the day in the green. But on that particular day, shares of Aurora Cannabis Inc (NYSE:ACB) tumbled 1.4%.

Why did Aurora Cannabis, which is one of the biggest players in the booming pot industry, see its share price slip on a day that the market rallied?

Well, because the company just sold its stake in Green Organic Dutchman Holdings Ltd (OTCMKTS:TGODF, TSE:TGOD).

Green Organic Dutchman is a Toronto, Ontario, Canada-based pot company that focuses on producing organic cannabis.

Advertisement

On the morning of September 4, Aurora Cannabis announced that it sold its remaining 28,833,334 shares of Green Organic Dutchman stock. With a selling price of CA$3.00 per share, the sale brought Aurora aggregate gross proceeds of CA$86.5 million. (Source: “Aurora Cannabis Announces Sale of Remaining Shares in The Green Organic Dutchman Sale of Non-Core Holdings Raises Gross Proceeds of $86.5 Million,” Aurora Cannabis Inc, September 4, 2019.)

After that transaction, Aurora Cannabis does not own any Organic Dutchman stock but still holds warrants to purchase 16,666,667 shares of it.

Since both ACB stock and TGOD stock tumbled on the news, should that be a concern for Aurora Cannabis investors?

Not really.

First of all, while the market hasn’t been that nice to Green Organic Dutchman stock in recent months, Aurora Cannabis Inc actually made quite a bit of profit from its investments in the organic pot company. According to Aurora’s press release, selling its stake in TGOD stock represented an internal rate of return of approximately 50%.

Second, although Aurora Cannabis just sold its entire stake in Green Organic Dutchman, it doesn’t mean Aurora is not pursuing other opportunities in the cannabis sector.

In particular, Chief Executive Officer Terry Booth said the following:

We evaluate our investment portfolio on a regular basis to make sure it continues to align with our investment strategy and corporate priorities. When we acquired Whistler Medical Marijuana Corporation – an iconic and premium organic cannabis producer – our interest in TGOD became less important to our core strategy.

(Source: Ibid.)

Founded in 2013, Whistler Medical Marijuana Corporation operates two indoor licensed production facilities in British Columbia. Note that Whistler Medical Marijuana was the first licensed Canadian producer to obtain organic certification and sell a full suite of organic-certified cannabis products.

In other words, Aurora Cannabis can still capitalize on the booming demand for organic pot from its now-wholly-owned subsidiary Whistler.

Third, and this is probably the most important one: Aurora Cannabis Inc’s core business is still growing rapidly.

Aurora Cannabis generated a net revenue of CA$65.1 million in the three-month period ended March 31, 2019. The number represented a 305% increase year-over-year and a 20% increase sequentially. (Source: “Aurora Cannabis Announces Financial Results for the Third Quarter of Fiscal 2019,” Cision, May 14, 2019.)

Production has ramped up nicely. In the March quarter, Aurora Cannabis produced 15,590 kilograms (34,370 pounds) of pot, which nearly doubled the 7,822 kilograms (17,245 pounds) it produced in the previous quarter.

And the best could be yet to come. According to Aurora’s latest investor presentation, the company is expected to increase its annual production capacity to over 625,000 kilograms (1,377,889 pounds) by 2020. (Source: “Investor Presentation,” Aurora Cannabis Inc, last accessed September 4, 2019.)

Aurora Cannabis Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Like most pot stocks, Aurora Cannabis Inc hasn’t been soaring in recent months, and its latest tumble after selling its Green Organic Dutchman stock only made the picture look gloomier.

However, given the company’s growing business and entrenched position in the cannabis industry, ACB stock remains one of the top names for pot investors to consider.