Aurora Cannabis Inc (ACB)

[Rule_62]

Dilution is not a dirty word. The definition of dilution is pretty straightforward.

Definition of dilution

The question is not whether the issuance of new shares by Aurora is dilutive. By definition, it always is. The question investors need to ask is whether the effect of the dilution is neutral, additive or subtractive to the value per share of the company in question, both in the immediate present and in terms of future value.

For example: Company A with 1 million existing shares, issues 1 million new shares, while simultaneously announcing the funds will be to build a new greenhouse. Their PR states the greenhouse will double the size of their existing production.

This poses a lot of questions. All need to be answered before the dilution can be properly valued.

1. Will the funds raised cover the cost of the new greenhouse, or can investors expect additional financings? Will the need to service additional debt (if that is the path chosen) weigh on future earnings?

2. While production will be doubled, will that automatically translate into a doubling of net earnings? The cost of a new facility might not be as cost-effective as an existing facility. On the other hand, overall staffing may not double due to the efficiencies of a larger production capacity.

3. Will the price received for current production hold true for the new production? Or is it going to supply a different market? (i.e.: recreational vs medicinal). If it is a different market, can the costs incurred and prices received be known at this point in time to allow a proper valuation? (for example, receiving $8/gm for medicinal and all the marketing, shipping and other associated costs that go with it, will not be the same as the value received for recreational vs. associated costs).

4. Has management demonstrated the consistent capacity to execute expansion plans on time and on budget?

That's only a partial discussion of the factors that must be assessed by an intelligent investor. OR you can simply be a sheep and blindly lap up every positive post and ignore every negative ...

Discussion boards can be extremely beneficial when used for constructive discussion instead of blind cheerleading and bashing. In my experience, unfortunately, that tends to be a rare occurrence.