Buy puts on ACB, expect another 10-15% drop next two weeks

by cpgupta561

Take my DD with a grain of salt, I rarely touch weed stocks but recently saw this and made a play and did some DD reading up on near term catalysts that may drag this dead overvalued cat down further. I also have been having issues cross referencing where they mean CAD vs USD so feel free to correct me

So not only did they have the worst trading day they’ve ever had in five years apparently (down 15+%) after they had a horrible earnings report that had widening losses, shrinking revenue, and a strong indication of lowered guidance as they basically killed all expansion, they have attempted to try to clear up upcoming debt in the sum of 230MM$C as part of march 2020 debentures (ie convertible debt) by offering a discount to convert immediately, get all interest owed between now and the expiration in March, along with a snazzy 6% discount

They are giving a window of time between Monday and Wednesday evening next week for people to step forward to have their debt converted and have already guaranteed to get a group with 155MM worth of their debt to commit to this.

That means there is an additional ~80M worth of debt that may end up deciding to actually take the deal (I’m not an expert but if you thought this company could go bankrupt, getting your debt converted early to shares and the interest up front seems like a good deal to take to take your money and run)

Even just with 155M worth of debt, this is approx 115M in USD which is 4.5% of float shares given current market cap is 2.58B

That’s 4.5% of equity dilution guaranteed, with a potential additional 2.3% share dilution occurring (this will be announced 11/22 after hours). This dilution can be even higher if the stock price keeps going down through Wednesday several percent

You can also bet that this 4-7% worth of float that has been diluted is going to get liquidated fast given the share price is in a downtrend (I haven’t seen any mention of a lockup preventing this)

Given that 4-7% of float is 40-70M shares, thats 4x average volume that will flood in sell orders. I think there are still people who want to BTFD but even then I doubt this thing will get filled at a great price deal and will drag this thing down below 2$

So we could see a 10-15% drop again, in addition to whatever standard bleeding we see occurring next week from this overvalued sector correcting finally.

Also note, it sounds like just to keep FCF going ACB will need to keep selling equity (they sold 25M shares this half it seems) which will dilute equity further

November also may prompt more selling for tax loss harvesting

There’s a chance the opening up of vaping market in several weeks could make this thing go back up, but I’m not sure there is evidence that even ACB expects it to make a material difference in near term.

Edit: My positionsimgur.com/gfmWSop

Link to the details on the convertible debt
www.prnewswire.com/news-releases/aurora-cannabis-announces-temporary-amended-early-conversion-privilege-for-its-2020-convertible-debentures-300958805.html

Tl;dr buy 2.5 P at least 2 weeks out and profit on tendies

 

 

Disclaimer: Consult your financial professional before making any investment decision.

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