Here's what just happened with a company I'm looking into. I deduced an "equity facility" is another lame term for a loan. When an investment firm acquires stock at a discount in exchange for a loan, does that drive the stock price up? Not sure how much $5,000,0000 is. @8^D VANCOUVER, June 6, 2016 /CNW/ - Aurora Cannabis Inc. -- (the "Company" or "Aurora") (CSE -- "ACB") (OTCQB -- "ACBFF") (Frankfurt: 21P; WKN: A1C4WM) is pleased to announce that on June 3, 2016, the Company entered into a non-binding agreement for a draw-down equity facility of up to $5,000,0000. The agreement provides for equity private placement offerings (the "Offerings"), to be conducted between Aurora and Alumina Partners LLC, a New York-based private equity firm, in draw down amounts at the sole discretion of the Company, of up to $500,000. Pursuant to the terms of the Offerings, Alumina Partners will commit to purchase up to $5,000,0000 of units of the Company (the "Units"), consisting of one common share (the "Shares") and one half of one common share purchase warrant (the "Warrants"), at discounts ranging from 15% to 25% of the market price of the Shares, with each Offering occurring exclusively at the option of the Company, throughout the 18 month term of the agreement. The exercise price of the Warrants will be at a 25% premium over the market price of the Shares. Closing is anticipated later this month. The purpose of the Offerings is to provide the Company with financial flexibility and unilateral control over the financing of its working capital requirements, and provide access to capital as deemed necessary by the Board of Directors of the Company.
It sounds to me like the company is issuing a combination of new shares and debt. New shares will dilute the earnings per share as it increases the number of shares. New debt will dilute the overall earnings as well. If the company manages to keep earnings and revenue at least level or better yet increase enough to make up for their offer they could be fine. I did do a quick look and their fundamentals and they do look like they are improving. Their eps has moved from -12 per share to -2 per share and they are projected to be profitable at +2 per share by the end of the year. If that holds and the use the money generated from this offering towards growth it could be a positive for future projections which is then a catalyst for an upswing in price. Bottom line is that it is risky but if you have an appetite for higher risk it does produce higher reward if it moves in your favor.
Might be a good opportunity to watch from the sidelines and buy after any dilution. Not that there aren't dozens of other options. Odds are good that most of the licensed providers of Canadian cannabis will do well in the next year.
