Aurora’s reverse stock split is all about increasing perceived value…

Editor’s Note: Danny Brody is an Advisory Board member for the National Institute for Cannabis Investors and Principal at RADD Capital. He is a cannabis IPO expert with more than 10 years of experience in finance.

Stock splits are nothing new.

They happen all the time, typically by smaller companies that aren’t on too many investor’s radars.

But well-known companies can have stock splits, too.

Well-known companies like Aurora Cannabis Inc. (NYSE: ACB), which is conducting a 1-for-12 reverse stock split planned for May 11.

Here’s basically what that means. Before the stock split, ACB stock is trading around $0.70. Once the split happens, it will trade for around $8.50 per share. The number of shares you will own will be different through the split, but the value of your ACB investment will remain the same.

With 16 acquisitions in a year and a half, mostly paid for in stock, and over a billion shares outstanding, Aurora’s reverse stock split was only a matter of time.

But there is much more to this decision that you need to understand…

Why Stock Splits

To help you understand Aurora’s decision, let me first tell you a little bit about my background so you can see where I’m coming from.

I got into the entrepreneurship world through trading stocks when I was in my early days at college. I made so much money day trading that I decided I wanted to drop out and just start trading for a living.

Then you probably know what happened next.

I turned my $10,000 into $80,000, then subsequently into zero…

As fast as it had come, it was gone.

I immediately started taking my securities courses to learn what I could have done better. I learned everything from the basics of investing in bonds to advanced portfolio management techniques to stock splits and how they play a role in the psyche of an investor.

This was always a game typically played by sophisticated business executives or strategic market promoters trying to give perceived value to a company that wasn’t there.

Not by manipulating, but by strategically using financial instruments to their advantage to make a stock price higher and show more “perceived” value.

Aurora’s Strategic Decision

In Aurora’s case, I feel this was a solid strategic move as it will take the company’s 1.3 billion shares outstanding down to just over 109 million. A much more manageable number, easier to stomach for most investors, and much more agile to regain some momentum with a higher share price and more perceived value. All while maintaining the listing requirements of all exchanges.

Here’s what Aurora Cannabis shareholders need to know before May 11 about the planned reverse stock split. Full story.

Additionally, a share price of roughly $8.50 provides much more perceived value.

While a strong strategic move overall, what this also tells investors is that Aurora is likely planning to do more financings.

This is because management doesn’t expect the company’s share price to recover back north of $1.00 in the near term to meet listing requirements, so this is likely the only solution given near-term cash restraints and significant debts coming due in 2021.

Through all my years of trading, watching, and playing the markets, I’ve learned that most stock splits generally result in lower share prices for investors in the near-term.

With continued problems plaguing the Canadian cannabis market, there are going to be a lot of good bets and a lot of bad bets made in the coming months.

For my own portfolios, I’m focused on three things – cash in the bank, a near-term path to profitability, and strong management teams.

If you’re ready to get started in cannabis investing, I encourage you to check out my comprehensive Cannabis Investor’s Masterclass where I share the three simple steps that I used to create my self-made fortune. Watch it here.

Best,

Danny Brody

Advisory Board Member, National Institute for Cannabis Investors

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Two cannabis dispensaries are testing out something new during the coronavirus pandemic – the use of cryptocurrency payment options. The legality behind it is a little murky and how the technology behind it works is complicated. But it’s an attempt to solve a big problem. Here’s a look at how the crypto industry is trying to solve the cash-only model in cannabis


Comments

20 responses to “The Strategy Behind Aurora Cannabis’s Reverse Stock Split”

  1. From my experience, most stock splits I lost the money. So I will stay away from investing in those companies.

  2. Ya, I sort of learn my hard lesson too.
    Pot/Weekend had 3303 share now down to 333
    FSD Phrma had 1050 down to 47
    and a couple more I believe. I split but not reverse split.

  3. April 30.20
    Danny

    Re: Aurora

    I read your comments. I have a small position in Aurora buying in at the $13 mark. Knowing that this stock will split 1-12 what would be your suggestion, hold or sell?

    I bought this stock for the long term only bec’ of its medical values.
    I look forward to hearing from you by May 11.20?

    • This is my question as well. Bought for long term but with the split wondering if i should sell before may 11

  4. so on the cost side , if I understand correctly, take my existing cost and now multiply by 12 to give me the correct breakeven. Correct?

  5. Not all reverse splits are a kiss of death. In another industry I held on through a reverse split and then a merger of that stock with it’s rival. The end result was I turned $1000 into $50,000. I was lucky, but the technology was sound and paid off even when the shorts were trying to kill it.

  6. If there’s good management and upside
    financial potential in the medical marijuana
    market than I welcome the reverse split

  7. I sold my ACB shares on Friday 5/8/2020 for a $324.00 loss on a $500.00 investment. When Don Yokam speaks I listen. I could have lost my entire investment on a short sale, or I may not have been able to sell my shares. Somebody probably bought my shares thru Robinhood. It still wasn’t worth the risk of loosing my entire investment.

  8. It is possible for ACB to turn the ship in the right direction. My investment is small and if the new CEO can meet the company’s objectives the will be profitable for me. I am staying and see where things go.

  9. I had 600 shares now 50
    I’m optimistic about the cannabis industry so I’ll hang in there.
    The distressing part is reverse split happened and it was not $8.50 but
    Started at $6.30 today 5/13 $5.40
    Am I foolish to stay or sell & cut my losses? I have lost so I’m thinking of riding this crazy economy with the pandemic & so many uncertainties!
    Thoughts?? Stay safe

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