Adam Jackson
Canadian giant Aurora Cannabis Inc. (Nasdaq: ACB) (TSX: ACB) has six months to get its share price back above $1 or face the specter of losing its Nasdaq listing, the company was told by the exchange’s management group.
Nasdaq Stock Market LLC told the Canadian cannabis giant it hasn’t met its minimum stock price requirement since Feb. 8, as its share price closed below a U.S. dollar for 30 consecutive business days.
The stock has slumped to 68 cents since hitting $150 five years ago.
The news came five days after Aurora asked Canadian regulators to approve a $650 million plan to sell more shares of stock and debt in exchange for some cozy capital.
With a Sept. 20 deadline, the exchange gave Aurora roughly six months to close at or above $1 for at least 10 consecutive business days. Nasdaq said that it has the discretion to extend this 10-day period in certain circumstances.
Aurora said that the letter doesn’t impact the day-to-day trading of Aurora’s shares or result in its delisting. The warning also doesn’t affect the company’s compliance status with the Toronto Stock Exchange, which doesn’t have a minimum price requirement.
The company said in a statement that it will actively monitor its share price throughout the compliance period and “consider all available options to resolve the deficiency” with every intention to regain compliance and maintain its listing.
Paths could involve finding new ways to boost investor confidence, exploring more financial restructuring options, or executing reverse stock splits to increase share prices.
A few cannabis companies have been struggling lately to keep their stock prices above a dollar.
In January, Village Farms International Inc. (Nasdaq: VFF) managed to raise about $25 million, even though it reduced the value of its CEO’s stake to less than 10% of the company.
Some firms, like Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC), have been able to stay above the $1 mark despite plans to sell $150 million worth of convertible debt.
On the other hand, companies like C21 Investments Inc. (CSE: CXXI) (OTCQX: CXXIF) have halted dilution plans to satisfy shareholders.
Frank Colombo, director of data analytics at Viridian Capital Advisors, suggested in a letter Monday morning that several factors contribute to the underperformance of cannabis stocks in recent years, including the failure of the SAFE Act, CSA Schedule 1 status limiting companies’ access to major exchanges, and IRS rule 280e making it difficult for companies to become cash positive.
However, the underperformance of both cannabis and psychedelic stocks cannot be fully explained by these factors alone, he said, as they face stigma and investor skepticism about their long-term profitability. Colombo suggested that investors need patience and a long-term perspective to benefit from the potential undervaluation in the emerging industries.
“A simple legislative action like SAFE will not easily change these factors,” he wrote. “Expecting either of these sectors to outperform in a capital starved, risk-off, likely recessionary period is unrealistic.”
In the meantime, he suggested focusing on companies with positive cash flow or more than a year of liquidity.
Cannabis capital raises remain at a multiyear low. Only $544.97 million has been raised in the first 11 weeks of the year versus $1.15 billion last year, Viridian wrote in a March 22 note.
Debt accounts for 53.1% of the total capital raised, while public companies have only managed to raise 65.1% of the total capital year-to-date, a decrease from 79.1% last year.
Jesse Redmond at Water Tower Research wrote in a March 27 note that the largest cannabis ETF and MSOs reached an all-time low last week.
“When stocks hit new lows, this can trigger sell programs and systematic trend followers also use this as an entry point for short positions,” he said.
Since its peak on February 10, 2021, MSOs have declined by 89.43%.
