Why Aurora Cannabis Stock Dropped 10% This Morning

Canadian cannabis kingpin Aurora Cannabis (NYSE:ACB) closed its acquisition of Massachusetts-based cannabidiol (CBD) maker Reliva LLC last night in a $40 million deal (or more than twice that, if Reliva hits certain financial milestones over the next couple of years).

That sounds like good news, but…

investors don’t seem convinced that it is good news. Aurora Cannabis stock plunged more than 10% as soon as trading resumed this morning and hasn’t gained back much since — down 8.5% as of 12:15 p.m. EDT.

Aurora interim CEO Michael Singer says the merger will “create a market leading international cannabinoid platform that we believe can deliver robust revenue and profitable growth.” Investors, however, seem more worried about the price Aurora paid for that growth.

At $40 million, the purchase price is about three times Reliva’s $13.5 million in estimated annual sales — which would be a bargain. (Aurora’s own shares fetch 6.6 times trailing sales.) If Aurora ends up paying the extra $45 million it has agreed to, for hitting “milestones,” however, the purchase price will be something closer to 6 times sales — still a bargain relative to Aurora’s own stock valuation, but much slimmer.

Also of concern: Forty million now and perhaps $45 million later will take a big chunk out of the $175 million in cash on hand that Aurora had at last report. Meanwhile, the company is carrying…

Continue reading at THE MOTLEY FOOL



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