Whether it be medical or recreational marijuana, there is expected to nearly limitless growth in the United States for the successful businesses that get their models right. That said, it’s not unusual for an emerging sector to go from a fad-trade to a bubble — only to see that bubble deflate, even if the trend for the industry ahead is looking at exponential growth. Aurora Cannabis Inc. (NYSE: ACB) already had come down hard from its high in 2019.

Merrill Lynch just took a big bite out of its shares on Thursday. Aurora Cannabis was downgraded to Neutral from Buy, and its U.S. shares saw their price target cut to $8 from $10 in the call. That may be better than a “Sell” rating, but investors treat downgrades of this sort basically the same.

Analysts Christopher Carey and Lisa Lewandowski still think of Aurora as a leading operator, but they worry that the company could need financing (after a shelf registration earlier this year) maybe as early as 2020 because of a cash burn and with a large $230 million (Canadian dollar) obligation coming due. The team sees it less ideal to raise money defensively at this stage of industry development.

The report is still positive on its business and said that Aurora Cannabis has emerged as one of the best operators in the cannabis sector that has industry-leading scale and margins (even versus other large peers) and global optionality. The report also said:

While clearly the longer Aurora goes without funding, the higher the risk to cash/need to delay projects, this isn’t our base case. Even without an equity deal, Aurora’s scale/asset base should allow it to plug financing gaps. However, at this early stage of industry development, when first mover advantage is key, raising capital from a defensive position rather than for untapped opportunities (like US CBD) is less ideal. Indeed, we think Aurora’s U.S. expansion (a core strategy, per management) could, if debt is added and no partner found, require other uses of financing like equity (capital raises or deals) despite management’s stated plan to slow pace of equity dilution. Upside risk to our call is if Aurora can ink a partnership that brings with it capital.

The U.S.-listed shares of Aurora Cannabis fell 6.2% to $6.95 on Thursday, in a 52-week range of $4.05 to $12.52.

While this is a big drop on a simple downgrade, it also came with a price tag of more than $400 million dollars against its market cap. That market cap is now $7.03 billion.

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