Why Aurora Cannabis’ 39% drop leads the marijuana industry on Friday

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What happened

Many stocks in the cannabis sector are trading on Friday. But Aurora Cannabis (NASDAQ: ACB) leads the way after diving up to 41%. As of 12:24 p.m. ET, Aurora shares were still down 38.8%. At a time, Tilray (NASDAQ:TLRY) shares were down 3.6%, and Hexo (NASDAQ:HEXO) the stock fell 5.3%.

So what

Aurora’s share tumble comes as existing shareholders react to a new round of funding that the company says will bring $150 million to the company. The financing comes from a bought deal financing agreement with underwriters for 61.2 million units at a price of $2.45 per share.

The stock has only seen such a low once this year, and it was down 10% from the share price when the deal was first announced. The units also include a common share purchase warrant which may be exercised at a price of $3.20 for a period of 36 months.

Image source: Getty Images.

Now what

Investors are likely sensing some desperation in the company that closes the deal. After all, the shares were trading near $6 a share at the start of 2022. The shares will be used for general corporate purposes, so there doesn’t appear to be any growth investments in mind for the funds.

In fact, just over a week ago, an industry follower MJBizDaily reported that Aurora was closing some of its operating facilities. This includes its flagship Aurora Sky facility in Edmonton, Alberta. The company also intends to sell its Sun greenhouse facility at an 80% markdown to what it had invested.

Today’s drops in Tilray and Hexo are not just in sympathy with Aurora. There was other news that also put sector stocks under pressure today. Peer Canadian Cannabis Grower canopy growth released its fourth quarter and fiscal year 2022 results this morning. Canopy also disappointed investors by missing revenue and earnings expectations.

Tilray and Hexo began working together earlier this year with the aim of benefiting both companies. Tilray has agreed to acquire up to $211 million of senior secured convertible notes that Hexo had previously issued. The two companies planned to enter into mutually beneficial business agreements, including the establishment of a joint venture that would provide shared cultivation and processing services to the two companies.

There is a noticeable difference in how Hexo raised this capital with future plans in place, compared to Aurora’s recent funding plan. Investors are certainly signaling their disappointment with Aurora today, and may also signal that they no longer believe in its future.

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Howard Smith holds positions at Tilray, Inc. The Motley Fool recommends HEXO Corp. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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