Aurora Cannabis Inc.’s ACB, -3.21% ACB, -3.56% $125 million bought-deal financing is not surprising, but may not be enough for the Canadian company to establish a needed foothold in the U.S., Jefferies analyst Owen Bennett said Friday. “Following ACB’s recent business update and restructured credit facility, we flagged a risk of underinvestment,” Bennett wrote in a note to clients. Since that update, “US political developments also mean the US market could open up sooner rather than later. ACB will certainly need cash to establish a US foothold, yet we still wonder if this is enough. Further, a strong US presence is arguably required to support the current multiple,” the analyst wrote. Jefferies rates Aurora as underperform with a $3.58 stock price target. The company announced the capital raise late Thursday and Bennett estimates its total implied dilution at 9% and up to 9.8% if the underwriters exercise an option to purchase an additional 10% of the units offered within a 30-day window. Aurora’s balance sheet rules out acquiring U.S. assets unless it issues shares at a material dilution, said Bennett. “Although it could leverage an existing CBD infrastructure, we wonder whether it has enough capital to support a leading CBD business (look how much Canopy is spending on that business segment alone), never mind expanding that into THC,” he wrote. “So while the additional cash is encouraging, we do wonder if still too little to really get a strong US CBD and THC presence.” Aurora shares were down 6% premarket but have gained 130% in the last three months, while the Cannabis ETF THCX, -2.29% has gained 82% and the S&P 500 SPX, +0.03% has gained 12%.
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