Things have been rough for the cannabis industry, with most of the companies losing beyond 50% of its value in 2019, and things don’t seem to be getting any easier within the industry. Aurora Cannabis (TSX:ACB) (NYSE:ACB)also saw over 80% decline its share value within a short span of six months.
The company is laden with high debts and heavy losses thanks to its overly ambitious expansion plans. The share prices plunged down further when the company raised fresh capital through a stock offering. The stock of the company fell down below $1 per share in March. Post the coronavirus pandemic; the stock continues to trade in the same range.
The company- being at the risk of being delisted from the NYSE- announced a reverse stock split in order to bring the price per stock above $1. The company has decided to split its shares 1-for-12 or in simpler terms; the split would multiply the stock price of the company 12-folds bringing up Aurora’s stock price to a whopping 8.40 dollars per share from the current price of around $0.70.
However, share splits, and reverse of the same is nothing but change in the intrinsic value of the company or the total value of share one holds. The reverse split of Aurora would result in the number of shares would get reduced, but at a higher price. To make it more comprehensible, let’s say an investor holds 1200 shares of Aurora – at $0.70 per share – worth $ 840. Post the splitting of shares, the number of shares with the investor would come down to 100 still worth $840 (at $8.40 per share). Considering the past experiences of stock-splits, very few companies have come through successfully, while the rest had their stocks being traded at the consistent new prices. To add to the concerns, Aurora also stated that the company plans on raising more capital.