 Good day, fellow investors. A lot of you asked me to analyze Aurora cannabis when I analyzed Canopy growth. Just a note on Canopy growth. I have been contacted by their investor relationships and they want to have a chat with me on the phone. So I will talk to them. I really want to hear their version of what I have said. Perhaps I said something wrong. If I did, I will correct myself. We'll let you know what I discussed with their investor relations. But let's now go on to ABC, which is another growth marijuana stock. And I want to see, okay, what's their business? Is it any different? How can they reach those targets and justify the current valuation? The first thing I noticed when going to ABC's investor relations page is the constant news flow where every day, practically, something hot and exciting happens. So they're going to build Aurora Sun. Aurora completes first ever private export of medical cannabis to Italy. Complets agreement with Associated to Supply Cannabis for Keyback, Adult Consumer Market, etc., etc., canymed acquisition, etc. Let's take a look at the canymed acquisition. So on September 30, the company had 368 million shares outstanding and then they issued 70 million, a little bit less, and paid approximately $144 million for the canymed shares taken up. So they have acquired canymed and diluted the shareholders by another 19%. So if we look at dilution over the last few years, it has been immense. Another thing to watch when you're investor, you don't like dilution. Nevertheless, the book value of canymed is 98 million, but Aurora paid about 702 million for the company, which means that the value of the brand is now 600 million. So 700 million for a company that had sales of 17 million over the last four quarters gives me a price to sales ratio of 41. I'll let you decide whether that is high or low. Of course, everything lies in the growth with these stocks. Something very interesting that I found is that ABC became a public company through a reverse takeover of Prussian mining company. A reverse takeover is when you cannot get listed by yourself or it's much cheaper to get listed by acquiring another company and exchanging shares so that you get the quote, the listing and everything. You're not doing it through a normal IPO. You are acquiring a zombie company, changing the name, you have the listing, you have everything. And then from there you go onwards. Another interesting thing is that Aurora made another deal with Canacord for a 200 million both deal financing where the company issued 200 million of convertible debentures. I don't think Canacord is going to convert Aurora if the stock price doesn't increase. So they will have to refinance 200 million in two years, which means that the business has to be up and running and profitable by then. What is funny is that Canacord got lots of shares already, but at much lower prices. We have seen the similar things at three and then converted at four, which means good profits for Canacord. And this is how you have to invest in these stocks by giving convertible loans. If the stock price goes up, you get the benefit. Of course, they have some limits, but you make huge money on the upside as you get the stocks. However, if the stock price goes down, your principal is fixed. So why don't you invest like Canacord in these stocks? Because they have limited their risks because they give them debt. So they are first in the payment line if something goes wrong. However, they have the same upside as you when you own a stock. However, your downside is much, much bigger. So think about that there are different investors with different risk rewards than what you have. Then my question is, and I know I will get a lot of heat again. If the business model is so good, you put up a greenhouse, whatever you grow cannabis, you sell it because there is so much demand. There is huge demand. Why don't you just get a loan with a small interest rate at a longer period than just two years? And everything is fine. No, you have to do convertible loans, you have to dilute shareholders, etc., etc. So I find difficult to see value in those huge dilutions. That's perhaps my problem, but let's look further. On the business side, Aurora produced 1,000 kilograms of cannabis in the last quarter and sold it for 8.2 million. The cost of doing that was around 4 million was the gross profit is 4 million. Now, as I said, everybody looks at these companies as growth, growth, growth. And Aurora has in plan to make the Aurora sky, Aurora sun, Aurora Nordic in Denmark and then produce 430,000 kilograms of pot in a year. This is 100 times more than what it does now. So when you're investing in this company, okay, they expect to produce 100 times more. When you have such a growth company, there are operational risks, there are dilution risks, there are pricing risks, there are investment risks. And a lot of things can go wrong when you grow a company 100 times. However, if the business model is replicable, healthy and profitable, and then you say, okay, I'm going to scale everything, lower my costs and increase the profits, then everything is good. However, if the gross profit on the 450,000 kilograms produced is 1.8 billion, if we estimate sales costs to be much less in percentage that those are now due to scalability, we could see ABC with an operating profit of let's say 1 billion, given some costs a little bit in percentage lower sales and market marketing, I hope. When they pay taxes, other costs could be at $2 per share of profits. So price earnings ratio of 10 with $2 of profits would see the stock price at 20 Canadian dollars, if there is no dilution in the meantime. If the company continues with its practice of diluting shareholders 100% per year, then you would see your EPS of 1 in the next year or 0.5 in the next two years, with them reaching their targets. And then you have a stock of not 20 but 10 or even 5. So dilution is the key when investing in such companies. I think that if it would be a healthy business model, then they would not have to dilute shareholders. And I don't like dilution, what can I say? Now if I would be more conservative and I see that sales and marketing costs are 44% of revenue now, so it's costly to sell their product, which means that sold wholesale, the selling price would be much lower and closer to the production costs. Let's say they have margin of $1 per gram or 1 million per kilogram, profits would be around 450 million, subtract the cost the taxes and you get to 200 million in profits in the good let's say conservative case scenario. So the stock price it was at 15 and since then it drive down, down, down, down to the current 780 as I'm filming this. These cannabis stocks are very, very long shots and if you invested somewhere six, seven months ago, then it's great because you invested let's say with lower risk. Now the risk is getting higher and there are a lot of things that are going on that are risky for shareholders depending the kind of shareholders. And the market cap is now 5 billion. If I see 200 million in profits, if they manage to execute what they have been doing without any troubles, then we are at the price earnings ratio of 25, which is relatively high. So I will be informing you again on the Cannopy Growth Investment Relation chat that I will have next week probably. So please subscribe if you haven't to the channel. We analyze stocks, we discuss stocks and if you haven't seen, please check my book on value investing and modern value investing on Amazon. The link is in the description below. Thank you for watching. Looking forward to comments and I'll see you in the next video.