Aurora Cannabis Inc (TSE:ACB) Cannabis Bigger Than Booze

James West
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Aurora Cannabis Inc (TSE:ACB) (OTCMKTS:ACBFF) (FRA:21P) CCO Cam Battley “strongly believes that the global cannabis sector will be larger than the global brewing sector, and potentially significantly larger”. Aurora have three dealer licenses at three different locations: Aurora Mountain, CanniMed, and Anandia Labs in which they will develop new product lines for all segments of the market.

https://youtu.be/Mcm0deuF0yY

Transcript:

James West:    Hey, welcome to Midas Letter Live. My guest in this segment is none other than Cam Battley, Chief Corporate Officer for Aurora Cannabis Inc. Cam, welcome back.

Cam Battley:   Nice to see you, James.

James West:    Cam, if Federal prohibition was to end in the United States for cannabis, would Aurora take a more active control over its US assets over Australis? Is that built into the whole pie, here?

Cam Battley:   So that’s the second part of it, right? We have this built-in back in right. So if at any time in the next 10 years, the US Federal landscape changes, cannabis is no longer a Schedule 1 drug, it becomes effectively federally legal on a medical basis to start with, then yes. We are able to come back in through that back in right, and participate with Australis and bring that back into the Aurora family.

James West:    Okay. And Australis itself will go public at some point in the very near future?

Cam Battley:   On the CSE and within the next few weeks, yes.

James West:    Wow. Hmm, interesting. And so what is – Australis, then, is a completely separate company –

Cam Battley:   Completely.

James West:    With access to some of the resources that Aurora has, on a completely separated basis. So what’s the management team’s mandate in pursuing these opportunities that you described? Are there boots on the ground right now in all of the states that are licensed, looking at assets?

Cam Battley:   Yes.

James West:    [laughter] Phew.

Cam Battley:   And here’s the thing: what’s interesting about the US market – well, there’s lots of interesting things. But one of the interesting things about the US market is that it’s not one. It’s not one market, it’s a series of different, smaller markets. And you’ve got California with its population bigger than Canada’s, and you’ve got Washington State, where there’s some very, very cool technology available. And of course, it’s spreading across the US, so you have 30 states with medical, and what is it, nine states plus district of Colombia with legal consumer.

Lots of things happening that are very, very cool, that we can see opportunities to leverage in the future, not just in the US but around the world. But it’s all separated. They’re not operating as one national market, so it’s a very, very interesting situation, and you’ve got to be nimble, you’ve got to be quick, you’ve got to have access to the capital, and you have to have very, very good business development people, analysts and so on to identify those technologies that we consider undervalued, and then bring them in and create something that is a cohesive whole.

James West:    Sure. What’s the background of the management team of Australis in terms of being qualified to hunt down these assets in the US markets?

Cam Battley:   What do you expect me to say, they’re a bunch of potheads?

James West:    [laughter] No. I don’t know, they’re a bunch of warriors!

Cam Battley:   Well actually, I don’t want to speak too much for them, because that company very shortly will be speaking for itself. But they’re –

James West:    Don’t want to steal their thunder.

Cam Battley:   Yeah, exactly right. And remember, we want them to have their own independent voice, and to operate completely independently. What I’ll do is, I’ll broker that and I’ll get Scott Dowty to come on, who’s the CEO of Australis, and then you can have that conversation directly, and I think you’ll find it quite interesting.

James West:    Sure. Okay. One of the viewers’ questions, and I’m going to bring this one up because it’s got a bit of comedy to it, because it’s – the question is, “What will Aurora’s next acquisition be?” If you could –

Cam Battley:   Come on. We can’t, we can’t play those games!

James West:    Well, I just thought it was cute, because obviously if you were able to say, then he would already know. So that’s kind of an interesting thing.

Cam Battley:   So just to be clear – and I don’t want to insult your viewer, we’re joking around a little bit – but we have to follow rules of proper disclosure. And also, more than that: there is an awful lot in this sector, a lot of rumour-mongering. Sometimes there are, you know, actual leaks, whether the information is good or bad or otherwise. And you and I have spoken about this before; we’ve seen actual retail shareholders get hurt by trading on rumours.

James West:    Right.

Cam Battley:   And I’ve spoken to a number of them. So I do want to be cautious about getting that stuff out there. As soon as stuff is fully baked and ready to go, we announce it.

James West:    Right. Some of the interesting value catalysts that have occurred in the market as recently as today, sort of have implications for Aurora, from where I sit, just because you’re not in that space yet. And I’m making reference to the Molson-Coors deal with Hydropothecary announced today, whereby Molson-Coors –

Cam Battley:   Yes, congratulations to Hydropothecary.

James West:    A great accomplishment on their part.

Cam Battley:   Sebastien St.-Louis, the CEO, I like him a lot, and they’re doing really good work over there.

James West:    They are. But that begs the question, what is Aurora’s game plan for the hugely potentially massive beverage industry?

Cam Battley:   Can I tell you how much I love the future of the cannabis-infused beverage business? I love it for a lot of reasons. If I were to identify two segments of the market that I’m really excited about, it’s cannabis-infused beverages and vape pens, neither of which we are permitted, under Health Canada regulations, to sell today. But, we can develop the products. So the nice thing is, we have now three dealer licenses at three different locations: at Aurora Mountain, at CanniMed, and at Anandia Labs, which is our testing lab and deep cannabis science company, which is very, very cool, and we’ll be talking more about them in the coming weeks.

And that allows us to develop all the products that we want to, all our dream list of products. And more than that, we’ve got an amazing new product development team under Dr. Shane Morris, who actually came over to us from Hydropothecary not long ago. And so he has put together a very, very aggressive new product development timeline for us to have new products that are acceptable under the current Health Canada regulations, and products that we will be able to sell in the future once concentrates and edibles, etcetera, are permitted.

But to circle back to the cannabis-infused beverages, you can imagine we have a very, very ambitious strategy in that market. I like that for a number of reasons, and I’ll tell you why: I strongly believe that the global cannabis sector will be larger than the global brewing sector, potentially significantly larger, for essentially three reasons. One, there’s no such thing as medical beer.

James West:    Right, well, arguably.

Cam Battley:   On Friday afternoon, I think we can probably argue that there is such a thing. But in addition to that, it’s the multitude of delivery mechanisms for cannabis, right? And if you think about it, it can be inhaled for rapid onset of action and short duration of action. It can be used sublingually, right? We’re developing that technology, so something that looks like a Listerine breath strip goes under the tongue and has rapid onset of action. You can ingest it. And you can have it in a beverage, you can have it in a vape pen. It’s great, there’s so many ways to deliver it.

Plus, and maybe this is the biggest consideration why I think it’s going to be bigger than brewing globally: it’s the diversity of consumer experiences available. Now, if you think about it, with alcohol, whether you have beer, wine or a shot of liquor, the same neurological effect is in play, right? Alcohol is a central nervous system depressant, so it has disinhibiting and certain other effects that can be considered pleasant in moderation.

But it’s always the same: same effect. Whereas with cannabis, you can have a whole range of different experiences, from uplifting and social if you want to get together with friends and have a few laughs, to more focused; let’s say you want to stay home and binge-watch Walking Dead, or if you want to have an intimate evening with your partner. A whole range of experiences is possible based on the combination of cannabinoids, the active pharmaceutical ingredients, and the terpenes, which are the aromatic compounds which give each strain its distinctive smell and taste.

And these things are believed to work together in what’s known as the entourage effect, the cannabinoids and the terpenes.

James West:    Right.

Cam Battley:   So that range of experiences suggests to me that, in each of these segments, add them all up with, I think, a lot of emphasis on cannabis-infused beverages: I think it’s going to be severely disruptive to traditional brewing. And that’s why Molson-Coors and other brewers and distillers are getting into the cannabis sector, because they can see what’s happening in states such as Colorado already, where alcohol sales are coming down. There’s a substitution effect in play, and people are choosing cannabis over alcohol. So the wise companies are taking a very close look at this just as Alcanna, a wise company, is now alcohol plus cannabis. Alcanna.

James West:    You know, that brings me to a point that I think a lot of investors are missing. Everybody says ‘Is it over? Is the bubble going to pop?’ And one of the things that people fail to appreciate, and you’ve just sort of made broad reference to that, is the idea that, you know, there are a range of applications for cannabis, not just recreational, but medically as well, and not just within one small subset in each area. It’s a broad range of recreational applications, a broad range of medical applications, where cannabis is going to disintermediate the incumbents. So in the case of opiates, we already know that cannabis is stronger, or at least as effective, as opiates, in many cases.

Cam Battley:   In moderate and chronic pain, for some patients. Let’s emphasize that. I don’t think anybody’s looking at cannabis right now to replace opioids for fractures or cancer pain – severe pain. But you’re absolutely right –

James West:    Have you tried shatter? [laughter] Because that’s all I can say. That’ll replace an opiate.

Cam Battley:   Fair enough, fair enough. And I do want to hear more about these experiences that give you this knowledge, but I just want to finish this point: you’re right, because there’s the pharmaceutical play, right? There’s the pharmaceutical play and the march toward intellectual property, which is why we acquired Anandia, which is why we are so heavily into the science and we’ve got a very, very science-heavy company now through the assets that we’ve acquired: Anandia, CanniMed, MedReleaf, and our own science, you know, existing science, at Aurora. So there’s that pharmaceutical play. There’s the veterinary play. There are the cosmetic plays. So we also have partnered with a cosmetics company, and we’re looking at developing cannabis-based cosmetics and beauty products, as well.

So there are so many potential applications, we haven’t even seen the tip of the iceberg. It’s going to be huge. This is a very, very valuable emerging sector. And so there’s, when people talk about a bubble, I don’t think they’ know what they’re talking about.

James West:    Well, I mean, it’s a bubble that’s going to get much larger before it starts to deflate. And the thing with sustainable bubbles is, they don’t always deflate completely; they just sort of separate into big companies.

Cam Battley:   Whenever a new industry is born, we see, if you want to call it a bubble, we see a lot of companies created, right? And then that consolidates down. Not everybody is going to make it. One of the things that we wanted to ensure at Aurora is that we’re by God going to make it, and that’s unarguable. We’re there, and we’re going to be around for a long, long time.

James West:    Great. Well, Cam, as per usual, it’s been a fascinating update. We could probably talk for hours, but we are going to cut it there.

Cam Battley:   Wait, I have one more question.

James West:    Oh, lay it on me.

Cam Battley:   Is this your dad?

James West:    No, that’s Ed. Special Ed, who’s not here today, so we had him cast in alabaster so I could talk to an inanimate object and pretend I was talking to Ed. [laughter]

Cam Battley:   I understand. I was really quite puzzled as to why we had play-doh sitting there on the table, but you’ve explained that adequately.

James West:    And my father’s head was quite a bit bigger. Anyways, Cam, we’re going to wrap it there. Thanks very much for coming in today.

Cam Battley:   My pleasure.

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James West

James West

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I employ a Capital Efficiency Model that dictates money should never be exposed for longer than is absolutely necessary to the possibility of being lost. Thus, I routinely sell half my position when a stock doubles from my entry price, and I sell stocks that lose 20%, unless there are...
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