Aurora Cannabis Inc Snags Largest Potential Supply Agreement With Alberta ALGC

Benjamin A. Smith

Aurora Cannabis Inc (TSX:ACB) (OTCQB:ACBFF) (FRA:21P) is the biggest prospective winner in the industry’s drive to supply legal cannabis in the province of Alberta. This should come as no surprise to investors, with Aurora’s 800,000 square foot high-technology greenhouse facility, known as Aurora Sky, operating in Alberta’s provincial capital of Edmonton.

The supply agreement with the Alberta Gaming, Liquor & Cannabis Commission (AGLC)—an agent of the provincial government—will allow Aurora Cannabis to allocate up to 25,000 kg of product for the first 6 months of sales to this market. Furthermore, acquisition partner MedReleaf Corp. reached its own supply agreement with AGLC, giving the would-be combined entity a decided advantage in terms of product mix on store shelves. Terms of MedReleaf’s allocated share weren’t disclosed, but expect their flagship San Rafael ’71 and AltaVie brands to be available in-store and online.

June 20, 2018 interview with Aurora Cannabis CCO Cam Battley, Canaccord Genuity cannabis analyst Matt Bottomley, and Micron Waste president Alfred Wong

The next biggest winner in this equation (or co-winner if you will), is Canopy Growth Corp. While it’s unclear whether aggregate supply potential will approach that of Aurora Cannabis, the company expects to supply Alberta with over 15,000 kilograms of cannabis products to support the first six months of the province’s adult use recreational market starting in October. Canopy will deliver products in a variety of forms, including whole-flower, oil, and softgel capsules.

Further parsing the language of both press releases, Canopy’s deal appears to imply a minimum allocation floor of 15,000kg, whereas Aurora’s SA is perhaps less defined (i.e. “up to” 25,000kg). Thus, it’s accurate to characterize Aurora Cannabis as the biggest prospective winner in this equation, although Canopy may presumably procure the biggest offtake when it’s all said & done.

As such, we consider both industry stalwarts co-winners on the day—especially considering the lack of concrete terms afforded to other Canadian LPs who came away with ALGC supply deal agreements.

AGLC Awards Several Simultaneous Supply Agreements, But Details Lacking

Perhaps the biggest subplot in AGLC’s decision making process is the lack of defined offtake terms afforded to various partners. While several cannabis LPs received agreements, most did not disclose supply terms, suggesting offtake will be rendered on a consignment or consumer demand basis. These vague elucidations differ from other provinces, where offtake numbers are defined for all but the most junior suppliers.

In total, thirteen Canadian LPs received deals with AGLC, including Maricann Group Inc., WeedMD Inc., Aphria Inc., Emblem Corp., Newstrike Resources Ltd. (UP Cannabis), OrganiGram Holdings Inc., The Supreme Cannabis Company Inc., MedReleaf Corp.Abcann Global Corp. Yet, only Aurora Cannabis, Canopy Growth, Maricann Group (up to 3,375 kg of cannabis product within the first six months) and Aphria (AGLC has placed a 870 kg opening order) have disclosed any concrete supply numbers.

Although several got their foot in the door, whether they remain entrenched will presumably be dictated by market demand. That’s the point where branding, strain quality and consumer buzz become paramount. Thus, the emergent winners in the Tier-3 cannabis space will be fighting tooth and nail to distinguish their brands among consumers, lacking absolute pricing, scale and marketing budgets to displace the sector’s top players.

The fight to remain of store shelves (and thrive) among the junior cannabis names is just heating up. Stay tuned.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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