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Aurora Cannabis Inc (TSE:ACB) Does Apathy to Dual-Listing Plans Signal A Dying Trade?

— Benjamin A. Smith
Aurora Cannabis Inc (TSE:ACB) Does Apathy to Dual-Listing Plans Signal A Dying Trade?

Aurora Cannabis Inc (TSE:ACB) (OTCMKTS:ACBFF) announced news that the company was exploring a dual-listing outside of the Toronto Stock Exchange (TSX). The response—much to the surprise of some investors—was rather lackluster. In fact, it was like the news never happened at all. Given the dichotomy between the market’s reaction yesterday, and the recent nitro-charged boost afforded to Cronos Group Inc. (NASDAQ:CRON) (CVE:CRON) and Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) on similar news releases, we ask: Is the half-life of the cannabis dual-listing trade already coming to an end? We explore.

To expand a little bit on yesterday’s release, the Edmonton-based company said it has been looking at listing on the NASDAQ, the New York Stock Exchange or the London Stock Exchange’s AIM. Of course, these are three of the world’s biggest and most important exchanges. The release further elucidates that Aurora Cannabis hopes to execute on those plans fairly soon, with CEO Cam Battery quoted as saying “let’s wait and see” (note the ambiguous non-denial).

What was the market’s reaction to this seemingly positive news? Aurora Cannabis finished down (4.76%), off $0.56c to $11.21/share. That performance was very much in-line with the sector, which closed down just over 4-percent. In other words, the news had zero material stock-boosting effect on prices.

So what happened? Why did Aurora Cannabis stock fail to elicit a similar euphoric response witnessed by both Cronos Group and Canopy Growth in the days prior? I think context is really important here.

First, the cannabis sector has been red-hot lately, up around 28% over the past 5 sessions (as judged by the Canadian Marijuana Index). With recent news that the Senate may add a new delays to Canada’s cannabis legalization plans, that momentum came to a screeching halt. As such, it looks like Aurora’s announcement was simply a case of unfortunate timing. The buyer’s strike permeating the market yesterday simply trumped the news of an individual issuer—buried it, in fact. Every company has experienced it.

Second, the Aurora Cannabis news was announced from a much higher perch than its peers. Aurora’s stock had jumped 10.44% in the two trading sessions prior, having benefited from a week-long industry surge. If we look back a little further, Aurora had jumped 18.71% off the February 27 closing low. Therefore, it’s safe to assume much of the latent investor demand in the stock had been wrung out at these higher levels, leaving profit takers to pick off the bid.

In comparison, Canopy Growth’s stock price had been flat in the two trading sessions prior to Bruce Linton’s announcement that the company was seeking to dual-list. Looking back further, Canopy Growth stock had shed (7.64%) from the February 20 swing high. Cronos Group—which didn’t even announce it was dual-listing on NASDAQ until the day before—had experienced similar sideways trade. In both cases, the dual-listing news acted as a lightening rod for renewed investor interest in their respective stocks. Momentum trading algos piled-on, creating a self-reinforcing ecosystem of higher volumes/high prices.

 

Is the Cannabis Dual-listing Stock Boosting Effect Passé?

I don’t think investors can necessarily draw that conclusion. As we’ve seen above, sometimes the effect of marketplace news is as much about where the stock is positioned than the actual news itself. Disseminating news during a start of a sector upswing can have dramatically different results than disseminating it when sentiment turns.

Also keep in mind that Aurora’s dual-listing plans were perhaps less detailed than its predecessors. For example, when Canopy Growth announced their NASDAQ listing intentions on March 1, they also announced they had looked into a dual-listing last October. The inference was that much of the heavy-lifting required to obtain regulatory compliance had already been obtained. In other words, Canopy Growth wasn’t just beginning the discovery process, but presumably nearing the end.

Where Aurora Cannabis is positioned in the filing process is still unclear. All we know is that Aurora has been contemplating dual-listing “for some time now” and “hopes” to execute these plans soon. The fact that several exchange possibilities were presented may infer that such a listing isn’t imminent. If so, Aurora may jumped the shark earlier than may have been warranted.

Had the press release been more specific, investors would have had more to chew on. But considering its vague generalities, it comes across as more news cycle filler than actual actionable content. I suspect this was a factor in the overall tepid investor response.

In the end, I don’t believe we can discount the cannabis dual-listing “effect” just yet. There are still a dearth of quality, actionable companies listed on American exchanges, and the saturation point hasn’t yet arrived. With Cronos Group as the only real pure-play cannabis option on the Big 3 American Exchanges, there’s plenty of room for other Canadian companies to reap the benefits of pent-up U.S. investor demand.

Eventually, the ‘Cronos effect’ half-life will be measured in minutes rather than days. This will likely occur when several pure-play cannabis companies complete their inevitable Tier-1 listing journey down south. But yesterday’s lesson is that such news must be targeted and timed correctly to produce a maximum effect.

Without it, such platitudes could be left twisting in the wind.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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bsmith@midasletter.com |

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