One of the most traded companies on the TSX, Aurora Cannabis Inc. (TSX:ACB)(NYSE:ACB) announced on Thursday that it had completed the open market sale of recent spin-off Australis Capital Inc. (CSE:AUSA) common shares on behalf of non-Canadian residents.
A total of 11,222,349 common shares in Australis Capital were disposed of in the public markets by the designated broker.
Australis Capital is a new investment vehicle that span off from Aurora Cannabis in September this year and it has a special focus on growth opportunities in the U.S. cannabis industry. The company has since moved its headquarters from Canada to Las Vegas, Nevada.
The spin-off’s shares have suffered heavy losses after shedding nearly 70% of their market value since the last time I cautioned about the stock on September 21. The selling pressure, together with a significantly fading hype on marijuana stocks have compounded the value losses on the offshoot’s equity offerings.
Significant selling pressure?
Australis has some 113 million common shares outstanding today. The 11.2 million shares that were sold represent nearly 10% of the public float. The stake that has been sold off on the open market was just too significant on a brand new offering that is yet to get wide market coverage.
The stock is also a victim of current diminishing trader and investor interest in cannabis stocks as the pre-October 17 recreational legalization hype has faded and the industry goes into a “show me the numbers mode,” yet Australis is just breaking new ground and its management is yet to resoundingly prove its genius.
How is Australis executing so far?
The company is aggressively executing on its investment mandate, and three strategic investments have so far been completed since the company became public.
First to stand out is the November 19 completion of the acquisition of a 15% stake in Wagner Dimas Inc., a leader in the large scale pre-rolled cannabis product market. Aurora Cannabis lists Wagner Dimas as a strategic investment in its portfolio.
The second is a full acquisition of leading digital health platform creator Rthm Technologies Inc. that closed on November 05. The tech company has a broadly successful health application that has achieved more than 100,000 downloads on Android Play Store and is said to have achieved millions of downloads on Apple app store.
The November 05 deal for a $6.4 million investment in Body and Mind Inc. (BaM) to obtain a 25% (undiluted) stake in the growing cannabis grower and marketer is another interesting transaction. A further $1.6 million in 8% unsecured convertible debentures in the investee could increase Australis’ stake to 45% on an undiluted basis if converted. BaM was one of Nevada’s first medical marijuana producers and the company has expanded operations to Ohio.
Investor takeaway
There are positive signs of a possible change in the United States federal stance on cannabis, starting with the senate farm bill and including the exit of Texas Congressman Pete Sessions, who is well known for blocking cannabis bills from being voted on by the House.
Investor interest in the United States marijuana industry is indeed present, but there is significantly limited access to cannabis opportunities for most institutional investors due to the state of federal legalization down south.
Australis Capital presents an easy access to U.S. cannabis growth opportunities for Canadian and international investors alike. Its connection to Aurora, a proven growth-through-acquisitions machine, is a significant investor confidence booster.
There is some potential upside to Australis Capital from here, and I would cautiously count the 7.9% rebound on the stock on Thursday as a potential bottoming out – now that selling pressure has been significantly lifted off the share price.
