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Why Aurora Cannabis Struck $27 Million Deal to Sell Alcanna Shares

Why Aurora Cannabis Struck $27 Million Deal to Sell Alcanna SharesAurora Cannabis Inc (NYSE: ACB) officially announced that it will enter into an agreement with a syndicate of underwriters led by Cormark Securities as the front runner to purchase $27 million in shares of Alcanna Inc (TSX:CLIQ) held by the marijuana heavyweight.

The underwriting agreement will be carried out on a “bought deal” basis, and the offer price of the shares is valued at CA$3. Aurora Inc’s position in the Canadian liquor chain is approximately 23% or 9.2 million common shares. The press release also claimed that the CA$27.6 million underwriting agreement will not permit an over-allotment option to underwriters. The share offering closed June 24, 2020

The agreement to sell Alcanna’s stock is Aurora’s move to improve its cash position. At the time of market close on June 4, 2020 Aurora’s shares were down by 1.25% in the Toronto exchange. On the other hand, Alcanna shares were up by 8.67% in the Toronto exchange that same day.

Aurora Inc’s cash position in Q3 2020 earnings release

Why Aurora Cannabis Struck $27 Million Deal to Sell Alcanna Shares

Marijuana stocks including Aurora Cannabis have been impacted by mounting losses and significant cash burn rates. In the third quarter 2020 earnings release, Aurora’s cash position was CA$73.8 million as compared to CA$299.9 in Q2.

The operating cash outflows for the quarter ended March 2020 was higher by CA$4 million compared to the same period one year ago. One of the factors contributing to this was the change in the cash conversion cycle.

In this quarter there was an increase in Accounts payable and accrued liabilities to the tune of CA$25 million. On the other hand, the inventory levels increased by CA$17 million, while the accounts receivable dipped by CA$22.4 million.

The company reported an unrestricted cash reserve of CA$230 million and marketable securities valued at CA$11.8 million in the third quarter of the fiscal year 2020.

Aurora’s business transformation update

Aurora’s business transformation update

Even before the COVID pandemic gripped the global economy, the Aurora Cannabis had announced a business transformation update on February 6, 2020. The company announced course correction measures to improve its liquidity and long-term objectives.

Aurora is considering a restructuring plan to bring down the SG&A expenses to $40 million per quarter from the fiscal Q1 of 2021. Additionally, in April 2020 the company sold off its greenhouse property in Ontario (for CA$9 million) and its Jamaican asset (for $ 3.4 million). It also decided to dispose of its holdings in common shares of EnWave Corporation for $4.1 million in April.

In a bid to contain the SG&A expenses, Aurora Cannabis decided to reduce employee count this week. Aurora also announced the closure of five operating facilities to improve profitability and streamline production.

Why Aurora Cannabis Struck $27 Million Deal to Sell Alcanna Shares

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