Aurora and Sundial have raised a ton of fresh cash at stock prices they wish their fundamentals could match.
Aurora’s cash hoard is a record $560 million and Sundial’s is “reported” CAD $610 million (“reported” as last Q $71 million plus raises of CAD $334 million = USD $100 million + USD $74.5 million + in recent USD $89 million in warrants. The reported $610 million was before CAD 22 million invested into Indiva. There may be other warrants struck too, as every raise had them.)
Further, both of their respective capital expenditures are largely behind them and while they are still burning cash (as measured by adj EBITDA last Q for $ACB -20 million and $SNDL -$ 4 million), they certainly should not burn through more than $100 million in a year or so (that might come back to haunt me).
Aurora still has bank debt of $171 million and convertible debentures of $288 million for an aggregate of $459 million. That would leave them with a cash balance of $100 million if they fully retired the advances at face value. My guess is the convertible debentures can be purchased at discounts a la similar moves from Aphria and Tilray.
Any acquisitions in the public Canadian cannabis space by either ACB or SNDL would likely be a spit swap of shares and not use cash: fluff for fluff.
Getting into the US THC market… I guess either could go the option route that Canopy went down and use some cash as a downstroke on options to purchase when permissibility occurs.
When the tide starts going back out and their stock price more accurately reflects their fundamentals… AND perhaps when US permissibility is allowed… won’t they make a nice acquisition with all that cash on the books. Assuming it is still there.
A reverse takeover by an MSO to get listed on the big exchange and absorb the cash might well be a play.
The caveat is that the price of acquisition is the cash plus a reasonable amount for the remaining assets, and certainly not the +USD 2 billion that ACB and SNDL are currently worth. The hype should be well off the Canadian assets in a year, as neither will be making major operational strides in the near term that show up in the financials over the next quarter or two in a meaningful way. Progress, should it happen, will be incremental. Twelve months more of operations to correctly price the assets seems right. If the assets are tracking for a sustainable improvement, they would be more enticing than they look like they do today.
I would imagine ACB assets (which includes a nice medical platform, middling recreational book, German cultivation and Sky and MedReleaf cultivation) would be more attractive than SNDL’s lower end Canadian recreational only platform and the Olds, Alberta cultivation facility.
As I have said repeatedly, “take the money when the market offers it.” Both Aurora and Sundial have done that with their raises. Both have eliminated near term cash deficiencies from operations that are still in Opex burn mode and will likely be for at least two more quarters if not four.
The question now becomes, can they groom themselves to be attractive pieces of an MSO puzzle while maintaining an attractive cash balance upon (potential) acquisition?
The preceding is the opinion of the author and is in no way intended to be a recommendation to buy or sell any security or derivative. The author has a position no position in either Aurora or Sundial and will not start one or divest in the next five days.