Shares have been slammed in the past year, plummeting from highs north of $9 in early 2019 to close down 13.3% to 76 cents in Monday trading, as the company has repeatedly failed to deliver promised profitability and hit other lofty targets. As the stock steadily marched downward, the company jettisoned top leadership and has continued to dilute its large share count by turning to the market for equity financing.

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Aurora said that it would grant shareholders one share for every 12 currently outstanding, reducing the amount of shares from more than 1.3 billion to roughly 110 million, but also issue even more stock, diluting shares more than 30%, according to an analyst estimate. U.S.-traded shares of Aurora fell 13% on Monday.

When Aurora bundles 12 shares into one, it plans to round up or down to the nearest whole share instead of paying cash for shares that are left over. This could be important to smaller individual investors who do not own many shares; the company did not immediately respond when asked if investors with fewer than six shares would receive one new share.

The company said it expects to consolidate shares around May 11, at which point the stock will begin trading at the new, consolidated price.

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According to Innovation Shares managing director Matt Markiewicz, the reverse split was largely expected by investors and Aurora had little choice. Innovation Shares’ holds Aurora stock through its Cannabis ETF
THCX,
+1.96%.

“They had to do this to stay compliant with NYSE rules,” Markiewicz said in a phone interview. “They can’t jeopardize the U.S. because of the large shareholder base here. There’s no way the company would risk cutting that conduit.”

In addition to splitting its stock to keep its listing status, Aurora plans to sell more shares to generate cash reserves after burning through a lot of its cash. Aurora plans to raise more cash via a stock sale, selling as much as $350 million in shares into the open market in small batches.

The company said it has exhausted its prior at-the-market financing program of $400 million, though it had said in the past its existing funding would be sufficient. Monday’s financing announcement means Aurora burned through more than $200 million during the company’s fiscal third quarter, according to Cowen analyst Vivien Azer. The company disclosed C$205 million ($146.6 million) in cash as of March 31.

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“The company intends to use a portion of this available capacity to provide further balance sheet strength and preserve flexibility given macroeconomic uncertainty caused by COVID-19,” Aurora said in a statement.

According to Jefferies analyst Owen Bennett, the new program represents a total dilution of roughly 30%, as of the stock’s closing price Thursday. “Today’s announcement of a further ATM, alongside language that suggests [how] this will be used, will be a blow to sentiment,” Bennett wrote.

Bennett has a target price of $1.45 and rates Aurora a hold.

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Consolidating shares also means Aurora will have to update the value of its option grants to its employees, adjusting the value of the options and the price at which employees can sell the stock to reflect the new bundled price. For many employees, that means the price at which they can sell the option will rise significantly above where Aurora shares will begin trading in May once the reverse-split is complete.

Azer wrote in a note to clients Monday that while access to cash is “a positive (particularly in the current environment), we continue to have concerns on the balance sheet.”

Ahead of the stock consolidation, Azer has a price target of C$2.50 and the equivalent of a hold rating.

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