Aurora Cannabis Inc (TSX:ACB) (OTCQB:ACBFF) (FRA:21P) is well on-target for an 11th straight losing session today, as the cannabis sector continues to retch. The losing streak is practically unparalleled in the space, matching only Aphria Inc.‘s late-March/early April capitulation as the longest bear run among major cannabis stocks, to my knowledge.
While the sector is knee-deep in another periodic demolition which has come to define the market, Aurora Cannabis has been particularly affected. Pending today’s closing print (currently, $0.32 away from break-even), this will mark 11 straight losing sessions, which almost never happens—in any market.
Although direct peer Canopy Growth Corp.—and practically everyone else in the sector—have suffered similar atrocity, Aurora Cannabis’ weakness stands alone. The largest intraday bounce during the losing streak is ↑$0.34, trough-to-peak, on July 17th; and ↑$0.30 commencing on July 18th open into the opening hour of trade. Since then, barely any green candles have surfaced on the hourly chart, and the Relative Strength Index (RSI) is approaching territory rarely seen in cannabis stocks—even during intense bear market cycles.
So why has Aurora Cannabis borne the brunt of such weakness? Many investors would cite the company’s pending acquisition with MedReleaf Corp.—scheduled to close on or around July 25, 2018—as the prime culprit. Once the deal goes through, somewhere in the neighborhood of 375 million free-floating Aurora Cannabis shares will be issued to holders of MedReleaf stock, which may be deposed at their discretion.
While that number appears daunting to some investors, there is a silver lining.
The intense bear market gripping cannabis stocks should take the sting out of any potential post-acquisition selling. Elementary logic dictates that the lower Aurora Cannabis trades, the less incentive MedReleaf shareholders have to sell newly-minted holdings. The fortuitous executives, accredited investors and insiders of MedReleaf didn’t attain such stature by being lemmings.
Keep in mind that some front-run selling has likely taken place, which should further mitigate pressure on Aurora’s stock post-acquisition. Almost assuredly, some investors have cashed-out significant tranches of future anticipated holdings, through various market techniques. At least, this is what the recent extreme downside price action suggests.
With the combined Aurora-MedReleaf entity poised to become the largest medical cannabis company in the world, attention surrounding the company’s immense share structure has taken a disproportionate percentage of the limelight. While such “concern” is understandable, perhaps the focus is misguided. The market may have organically quelled many of the market’s concerns on its own.
Either way, with Aurora Cannabis shares entrenched in deeply oversold territory on below trend volume, one wonders if an acute oversold bounce isn’t imminently coming. Not only with Aurora, but the sector at-large.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.