Why Aurora Cannabis’ 39% Drop Is Leading the Marijuana Sector Down Friday

What happened

Many cannabis-sector stocks are trading down Friday. But Aurora Cannabis (NASDAQ: ACB) is leading the way after it plunged as much as 41%. As of 12:24 p.m. ET, Aurora shares were still down 38.8%. At the same time, Tilray (NASDAQ: TLRY) shares were down 3.6%, and Hexo (NASDAQ: HEXO) stock was down 5.3%.

So what

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

The stock has only seen a level that low once this year, and it represented a drop of 10% from the share price when the deal was initially announced. The units also include one common share purchase warrant that will be exercisable at a price of $3.20 for a period of 36 months.

Image source: Getty Images.

Now what

Investors likely sense some amount of desperation in the company doing the deal. After all, shares were trading at nearly $6 per share at the start of 2022. The shares will be used for general corporate purposes, so there doesn’t seem to be any growth investments in mind for the funds.

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

Today’s drops in Tilray and Hexo aren’t just in sympathy with Aurora. There was other news that has stocks in the sector under pressure today, too. Peer Canadian cannabis grower Canopy Growth reported 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 an aim to benefit both companies. Tilray agreed to acquire up to $211 million of senior secured convertible notes that Hexo previously issued. The two companies planned to enter into mutually beneficial commercial agreements, including establishing a joint venture that would provide shared cultivation and processing services to both companies.

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

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Howard Smith has positions in 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.