Aurora Cannabis Inc (NYSE:ACB) is one of the best plays for investors looking for exposure to cannabis. The latest earnings release further backs this up as the company remains well ahead of its peers. Any further pullback on weakness or profit taking should be viewed as a discount entry opportunity as there is a lot to like with Aurora Cannabis and what CEO Terry Booth has built. ACB is active on 5 continents and in 22 countries. Aurora has the leading medical market share among all cannabis companies in Europe and Latin America and the company is just a few years old. Taking a deeper look, there’s a lot to get excited about with ACB.
First up, a little background info for those that are not familiar with ACB. Headquartered in Edmonton, Alberta, Canada with funded capacity in excess of 500,000 kg per annum and sales and operations in 23 countries across five continents, Aurora is one of the world’s largest and leading cannabis companies. Aurora is vertically integrated and horizontally diversified across every key segment of the value chain, from facility engineering and design to cannabis breeding and genetics research, cannabis and hemp production, derivatives, high value-add product development, home cultivation, wholesale and retail distribution.
In addition to the Company’s rapid organic growth and strong execution on strategic M&A, which to date includes 15 wholly owned subsidiary companies – MedReleaf, CanvasRX, Peloton Pharmaceutical, Aurora Deutschland, H2 Biopharma, Urban Cultivator, BC Northern Lights, Larssen Greenhouses, CanniMed Therapeutics (CMMDF), Anandia Labs, HotHouse Consulting, MED Colombia, Agropro, Borela, and ICC Labs – Aurora is distinguished by its reputation as a partner and employer of choice in the global cannabis sector, having invested in and established strategic partnerships with a range of leading innovators, including: Radient Technologies Inc. (TSXV: RTI), Hempco Food and Fiber Inc. (TSXV: HEMP), Cann Group Ltd. (ASX: CAN), Micron Waste Technologies Inc. (CSE: MWM), Choom Holdings Inc. (CSE: CHOO), Capcium Inc. (private), Evio Beauty Group (private), Wagner Dimas (private), CTT Pharmaceuticals (OTCC: CTTH), and Alcanna Inc. (TSX: CLIQ).
ACB reported strong results for Q2. Aurora reported net revenue of $54.2 million, up 83% sequentially, and up 363% compared to the same period in 2018, driven by Aurora’s strong performance in the launch of the Canadian consumer market with sales of $21.6 million, and the Company’s continued strength in the Canadian and international medical markets with sales of $26.0 million, up 8% in revenue and 23% in volume sold. Based on available data released by Health Canada for the Q2 2019 period, Aurora accounted for approximately 20% of all consumer sales across Canada.
The own downside that some are zeroing in is the large quarterly loss. However, this was the result of non-cash expenses including the December 31, 2018 mark-to-market adjustments of approximately $190 million primarily on the Company’s derivative investments that contributed significantly to a net loss of $240 million.
The most significant driver of Aurora’s revenue growth over the next twelve to eighteen months is the Company’s scale-up of high-quality production available for sale to the Canadian consumer market and the Canadian and international medical markets. Aurora is now operating at an annualized production rate of approximately 120,000 kgs, based on Health Canada approved planted rooms, and expects to reach in excess of 150,000 kgs by March 31, 2019.
The Company anticipates that with Aurora Sky operating at full capacity, as well as continued reduction in operating costs, the cash cost to produce per gram will trend significantly lower. Management reiterates its expectation that the sustainable long-term operating cost at its Sky Class facilities will be well below $1 per gram.
Aurora has secured a distinct first-mover advantage by attaining valuable import and export agreements with markets that have a high barrier to entry, reinforcing the Company’s commitment to serving the global cannabis industry. New supply agreements this quarter have expanded the Company’s sales and operations to 23 countries. In Q2, ACB exported product to Poland, Mexico, Czech Republic, Luxembourg, and the United Kingdom.
ACB New Products
In Q2, Aurora launched Canada’s First Legal Vape-Ready CBD Oil Cartridges. To date, Aurora Cloud products are the only vape-ready CBD products legally available in Canada. The initial product release is the first of a broader line of full-spectrum cannabinoid-based, vape ready cartridge products, which the Company intends to launch in the near future. Also, Aurora commenced shipments of cannabis softgel capsules to the Canadian medical and consumer markets from its state-of-the-art Aurora Vie facility. In addition, Aurora currently has 40 clinical trials and case studies completed or in progress, 7 pre-clinical trials in progress, and 6 new partnerships with leading academic institutions in development.
In Q2, Aurora acquired ICC Labs, Whistler Medical Marijuana Corporation, and Farmacias Magistrales S.A. ACB also increased its investment in Choom Holdings, a consumer cannabis company that has secured one of the largest retail networks in Canada, and invested in High Tide Inc, an Alberta-based, retail-focused cannabis and lifestyle accessories company.
As you can see, there’s a lot to like with Aurora Cannabis. The company is well-diversified and provides an investor with exposure to all facets of the cannabis space. While there may be some selling pressure after earnings, we will look at that as an opportunity to get a long-term exposure to a great company.
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Disclosure: We have no position in ACB, although we may initiate a long position within 72 hours after publication. We have not been compensated for this article.
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