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Aurora Cannabis stock’s struggles continued on Friday after two analysts lowered their ratings, citing concerns about the strength of the pot grower’s balance sheet.

The back story. Aurora stock (ticker: ACB) is down 22% in the new year and has fallen 74% over the past 12 months.

The company’s credibility has suffered as it has failed to meet its own forecasts. Analysts have complained about communication by management and are also increasingly concerned about the company’s spending and its ability to pay back debt.

What's new. Two separate analysts recently called Aurora’s financial strength into question.

Bank of America Securities analyst Christopher Carey wrote in a note Friday that while Aurora has taken the right steps with asset sales and lower spending, he doesn’t think the company is in a position to meet financial covenants in its 400 million Canadian-dollar (US$306 million) credit facility.

He expects balance-sheet strength—low debt and high holdings of cash, plus the ability to generate more—will be increasingly important to pot stocks in 2020. “Unfortunately, ACB has the weakest in our group, while valuation is still near group high,” he wrote. “Simply put, despite attractive qualities, it’s untenable for us to recommend the stock, and would be more comfortable at a lower valuation.”

Michael Singer, executive chairman of Aurora’s board, said in an emailed statement that senior management is working to rationalize Aurora’s business “to the realities of the short-term market while positioning Aurora for the significant long-term opportunity ahead.”

He added the company is focused on “consistent execution, operational excellence and are evaluating all options to strengthen our balance sheet. Aurora remains excited about our market position and looks forward to providing future updates.”

Piper Sandler analyst Michael Lavery wrote in a note on Thursday that while Aurora leads the industry in production capacity, its balance-sheet position is a notable risk.

He expects cash from operations to be negative until the third quarter of fiscal 2021. Even with C$80 million expected from an “at the market” stock offering, he estimates a C$200 million cash deficit in the interim.

Aurora stock was down 9% to US$1.68 on Friday, while the S&P 500 index was nearly flat.

Looking ahead. The analysts lowered their Neutral ratings to Underweight and Underperform, both with US$1 price targets.

“Cost cutting or asset sales could help cash position,” Lavery noted. “We project lower capex, falling costs and improving margins, but Aurora could take more significant austerity measures than we model.”

Carey wrote that with cash tight, uncertainty about the outlook will likely carry into the second half of 2020.

“To be clear, we expect the covenants to be restructured, a big step in helping investor confidence,” he wrote, referring to the terms of the C$400 million credit facility. “Once this and visibility on financial delivery improves (and valuation with it), we see an opportunity to return focus to ACB’s key positive qualities.”

Write to Connor Smith at connor.smith@barrons.com