Canadian marijuana company Aurora Cannabis’s reverse stock split was approved by its board in an effort to increase its share price,which has fallen under $1 and putting it at risk of being delisted.

Cannabis sales are up as more and more people are forced to stay at home to curb the spread of the coronavirus.

However, marijuana providers like Aurora Cannabis Inc. (NYSE: ACB) have been struggling as they struggle to raise cash. Investors are pushed away by market volatility in every sector.

On Monday, the Aurora Cannabis board reaffirmed a plan to offer a reverse 12:1 stock split to consolidate all of its outstanding common shares.

The company also hopes to raise an additional $350 million to “to provide further balance sheet strength.”

The Aurora Cannabis Reverse Stock Split?

Aurora Cannabis will consolidate every 12 outstanding common shares of ACB stock into one share.

The reverse stock split is an attempt to keep its share price above $1. To remain on the New York Stock Exchange, companies must have a share price of $1 or more.

Aurora Cannabis reverse stock split

On Monday morning, shares of Aurora Cannabis were trading at $0.75.

Traditional stock splits are when a company offers additional shares for each one held by a shareholder. This is done when a company’s share price rises suddenly.

For example, a 2:1 stock split is where the company will give one additional share for each share held.

Aurora Cannabis’s stock split is the reverse. It is actually combining every 12 shares held into one. Reverse stock splits are usually done when a company’s share price falls. By consolidating the shares, the price of the stock should go up, theoretically.

“Our focus today continues to be on financial discipline across the entire organization. We are taking appropriate actions to strengthen our cash position and maintain financial flexibility as we navigate through the current environment,” Michael Singer, executive chairman and interim CEO, said in a statement.

How it Works

How it works is simple. An example would be to use simple math:

In a reverse 5:1 stock split, 10 million outstanding shares at $0.50 each would become 2 million shares outstanding at $2.50 per share.

The market capitalization remains the same at $5 million.

Aurora Cannabis has 1,313,494,990 common shares outstanding. Its reverse stock split would reduce that to 109,457,915 common shares.

The company said it would not be issuing fractional shares. Investors entitled to a fractional share would have their number of shares rounded up or down to the nearest whole number.

“As Aurora drives towards generating positive free-cash-flow, we are confident that our shareholders will be supportive of our further actions to solidify our balance sheet and position the Company for success,” Singer said.