VIDEO: Aurora Cannabis Inc (TSE:ACB) Launches Best-in-Class Aurora Sky Facility (Site Visit)
Aurora Cannabis Inc (TSE:ACB) (OTCMKTS:ACBFF) (FRA:21P) COO Cam Battley shows James West the company’s cutting edge Aurora Sky facility at the Edmonton International Airport. Aurora Sky is built to EU GMP standards and is the most technologically advanced cannabis hybrid-indoor facility in the world. Aurora Sky is not a greenhouse but rather an entirely closed indoor facility with a sophisticated glass roof that allows Aurora full control over environmental conditions. Aurora’s facility at the airport is the first in a line of Sky-class facilities that will be built-out globally. Aurora Sky facilities are designed to produce cannabis well under $1 per gram, creating new industry production standards.
James West: I want to say hello to everybody first of all, and I’m here with my good friend Cam Battley, Chief Corporate Officer of Aurora.
Cam Battley: Aurora Cannabis.
James West: Aurora Cannabis, as if there was any need for that. But we’re sitting here, we’re standing here in Aurora Sky’s brand new, ultra-high-tech facility. Now, I’ve got to tell you: I’ve never seen anything like this in all my days of cannabis site visits.
Cam Battley: There is nothing like this.
James West: Nothing like this.
Cam Battley: There’s nothing in the world like this.
James West: You guys invented this.
Cam Battley: We invented it, yes.
James West: So this is part of, you were talking earlier about your relationship with Thomas –
Cam Battley: Thomas Larssen.
James West: From Larssen Greenhouses, and you ended up acquiring Thomas because you found yourself –
Cam Battley: He was the best in the world, we were creating new intellectual property together; we had no choice. We had to acquire him, or kill him, and we decided to acquire him instead.
James West: He’s probably happy about that.
Cam Battley: Yes, and we are, too.
James West: So, now what is it we’re growing, here? Is this like camphor or tomatoes?
Cam Battley: Something way more valuable than that! So this is one of the 17 flower rooms at Aurora Sky. Each of them is identical; each of them is 34,000 square feet, and all together, they produce over 100,000 kilograms of high quality cannabis per year, and they do it consistently and they do it at the highest production efficiency in the world, and they do it without crop loss.
James West: How much of that do I get?
Cam Battley: How much have you got in your wallet?
James West: Edward, we’re going to need to crank up the money-making machine here, again! So Cam, tell me: how long did this thing take to build? How much did it cost, and how does the return on investment work for the economics of Aurora?
Cam Battley: The return on investment is insane; it’s about three months at full capacity. The time to build, from the time we actually started construction on the physical facility, was about 14 months, and the great thing is, and that’s pretty fast for a facility like this, which is completely different from everything else out there. Remember, this is not a greenhouse; this is not a greenhouse, this is an indoor facility with a glass roof that allows us to harness the power of the sun, but we also have supplemental lighting, and we’re able to ensure the optimal level of light on the canopy at all times.
But the beauty of the closed system, with – and by the way, we’ve got Merv Level 14 air filtration here, so you’re currently breathing probably the cleanest air you’ve ever breathed – is that we control all the environmental variables. All of them, from the lighting to the temperature to the humidity to the nutrients. And that’s part of why we get the highest production efficiency in the world out of these facilities. It’s also why it’s so predictable, so regular, so consistent, and it’s also why we don’t lose crops. We’re not open to the air, so nasty things can’t get in.
James West: Right. So I want to address some of the criticisms that have been levied at Aurora from the sort of cannabis universe that we are now able to say in no uncertain terms, are any of them, not a single one is valid. Some people have said, ‘Oh, it’s way too close to the airport; the fumes from the airlines are going to make it impossible to grow cannabis’. Clearly, not true.
Cam Battley: So that one I really love, because it was actually spread by, told, by numerous analysts it was spread by one or more of our competitors. As you can see, that can’t be the case; this is, we have the most powerful HVAC system here that anybody has ever seen, and the level of air filtration is, you know, like that of a Level 4 lab, practically. So clearly we don’t have any contaminated cannabis; it’s beautiful, happy, healthy cannabis plants.
James West: And we’ve been in multiple rooms, and there is – these rumours that oh, they can only show you one room, they’ll never take you through the whole place – we’ve been through the whole place, we’ve been in almost every room. I don’t know if it was 17, but I actually stood and looked over the shoulder of the security office, and we were able to see all 17 rooms are very productive, very active, and it doesn’t look like there’s any spare room to do anything else here except grow cannabis.
Cam Battley: No. And the beauty is, this is the first of a whole class of Sky-class facilities, right? So we have tested all of the technologies here; the next in the Sky-class facilities will be Aurora Sun in Medicine Hat, Canada’s sunniest city, and it will be more advanced than Aurora Sky. It’ll also be 50 percent larger, so, 1.2 million square feet, producing 150,000 kilograms of high-quality cannabis per year.
And so each time we build one of these Sky-class facilities, we take everything that we learned in the previous one, we apply it, and then we add additional technology. And for Aurora Sky itself, we actually added about $15 million of additional technology to the facility while we were building it.
James West: Okay, very cool. And the other thing that I heard a lot of people suggesting is that the fact that you’re in Edmonton, and way up north, and where it gets dark earlier in the winter, is going to impact your economics so negatively that you’ll never make money.
Cam Battley: So we could drop one of these Sky-class facilities into an Equatorial region, we could drop it into Scandinavia, and oh, by the way, we are actually dropping one into Scandinavia; we’re building another Sky-class facility, Aurora Nordic, in Odensk, Denmark.
James West: (unintelligible) You didn’t know I spoke Nordic, did you?
Cam Battley: Some Scandinavian people are going to show up at your door and beat the shit out of you.
James West: No, they love it, they love it when I do bad accents.
Cam Battley: So what we like about this is, first of all, it’s exciting to invent this brand-new technology. But we think that we’re creating the future of cannabis cultivation. It’s part of why we brought Thomas Larssen on board; it’s part of why we are so heavily into integrating technology into everything we do, from the cultivation itself to the harvests.
You know, earlier, we showed you one of the robotic cranes that we use to pick up entire tables of cannabis and bring them into the central corridor, where they move on a conveyor to the harvest areas. That’s the way we do things. We want to bring as much efficiency to this process as possible, and one measure of that is, at our first production facility, Aurora Mountain, an hour north of Calgary – which, at the time, was the first purpose-built cannabis production facility in the world – we have 125 people working there. That’s a 55,000 square foot facility.
Aurora Sky is 20 times the size in terms of production, 17 times, you know, physically, and we only have 400 people working here. If you were to try and hire the number of people required to harvest a facility of this size in a traditional greenhouse, you’d be looking at well over 1,000 people required, maybe 1,5000.
So that’s our fetish, if you like: to take cannabis production and improve every aspect of it. So, you know, if you were to start fresh in producing cannabis and processing cannabis, how would you do it optimally? That’s what we’re trying to do. it’s working, and it’s working great.
James West: Okay. So your whole game plan here is to so automate the entire process, the exposure to pathogens as a result of lots of people is eliminated, the high cost of physical labour is reduced drastically, and what other efficiencies of scale are you realizing by building such monstrous facilities?
Cam Battley: Well, let’s actually go back to one of the things you said: we’ve taken people out of the cultivation rooms, out of the flower rooms. And if you take a look at the way our rooms are set up, there are no walkways. So that allows us to do a couple of things. One, we reclaim that space as table space or canopy space to actually grow plants; you don’t have to have people walking up and down.
But the second thing is, we remove human beings, who are the most common vector for the transmission of containmants. We remove them from the equation, and that leads us to even greater production efficiency. And we will continue to advance that as much as possible with continuous improvement.
So what we’re going to do is take this globally. And you know, we’re already operating in 18 countries worldwide; we have production facilities in Canada and Europe now, and we’re also building a mini version of the Sky-class facility for our partner, CannGroup, in Australia. We can put these facilities anywhere in the world, and that is the beauty of them. What we’ve done is, we’ve created what I think is the model that is most replicable and scalable on a worldwide basis for consistent cannabis production and economical cannabis production.
So these Sky-class facilities are designed to produce cannabis for well under $1 per gram. So we’re already an efficient and economical producer; this will create a new standard.
James West: Sure. So how much cannabis will you produce in 2019?
Cam Battley: Okay, so that’s going to change through the year. So by the beginning of 2019, we think that we’ll be on an annual run rate of about 160,000 kilograms per year. But because we’re adding capacity through the year, by the end of 2019, that number will be significantly larger as we add production from Aurora Sun, for example, in Medicine Hat.
So it’s a bit of a moving target, if you like, but what can tell you is that by the beginning of 2020, we’re targeting having in excess of 500,000 kilograms, or 500 million grams, of cannabis production per year, on an annual run rate.
James West: At what point in the future timeline does Aurora become cash flow positive and stop needing to go to the markets to raise capital?
Cam Battley: Well, those are two different questions. When do we want to stop going to the markets to raise capital, versus where we become cash flow positive. We’re very, very close to that, and I’ve been thinking in my mind that we’d get there right around the end of this year. I think that’s still fairly realistic, but we’ll know for sure by the end of this year, calendar year, 2018. And if it’s not by the end of this calendar year, then it’ll be soon into calendar 2019. We’re getting awfully close right now, and we do have to wait to see what the demand and what sales are like in the consumer system to be able to say that with high level of confidence. That’s why I’m hedging a little bit.
James West: Sure. Okay, so the reason I conflated those two separate issues is because the question for me is –
Cam Battley: Want to raise some money for us?
James West: Happily! The question for me is, how much more money are you going to need to realize your full CapEx plan for the whole global buildout?
Cam Battley: So all of our facilities are funded; that’s taken care of. But there are other questions, as well. And that is, how fast do we want to expand on a worldwide basis? Into how many markets, and how soon, on what timeline? And so those are some of the things that we’re thinking about right now.
We know that we’re going to be generating a lot of free cash flow early in 2019. Will that be sufficient for all of our needs? It depends on how our strategy evolves, and part of that is in response to the speed at which new medical cannabis markets, and ultimately consumer cannabis markets, are opening up. One good example of that is the United Kingdom. Nobody was planning on the United Kingdom having a medical cannabis system ad the beginning of 2018; then the stories of a couple of very sick little boys with epilepsy changed that very, very quickly, and now it looks like the United Kingdom will become a very important medical cannabis market in a short period of time.
We will probably find that the same ethic will apply to a number of other markets that people hadn’t been suspecting in the past, and frankly, I think that we can help that process by going into those countries, explaining what the system is all about, how legitimate medical cannabis is, and showing them our track record of multiple years of operating in full compliance with Health Canada regulations, and bringing them over here to actually see it with their own eyes.
James West: Are you concerned at all about a risk whereby nations overseas want to embrace more of the economic opportunity inherent in cannabis, and are going to move to try to squeeze out those pesky Canadians who are now globally dominant?
Cam Battley: We anticipate that. Countries around the world are going to want to participate in the creation of this new industry and the economic benefits – the new investment, the economic development spinoff benefits, the new employment and the innovation – absolutely. So our answer to that is, first of all, we’ve got the expertise, we’ve got the capital, we’ve got the reputation, the credibility to be able to do it. But we also want to be your domestic producer. So we are going to find ways, whether it be sole ownership, joint venture, partnerships, to be involved in multiple jurisdictions around the world. We’re going to be producing cannabis around the world; that’s the plan.
All right. I will list the facilities, hoping not to leave any out, and perhaps one of my colleagues off-camera could help me out if I fall down. So
James West: That’ll be you, Heather.
Cam Battley: So we’re on our way to 11 facilities. We’ve got eight operating right now in Canada and Europe. It started with the Mountain facility north of Calgary, Aurora Mountain. This is Aurora Sky, obviously. Aurora Sun, we’re constructing in Medicine Hat, that’s three in Alberta.
Then we have the CanniMed facility in Saskatoon – that’s all for Saskatchewan.
On to Ontario: we have two operating facilities that used to be MedReleaf; we have them in Markham and Bradford.
On to Quebec, we have two facilities there, Aurora V and Aurora O in Lachute; Aurora V is in Pointe Claire, on the island of Montreal. Then help me out if I missed any here, so far in Canada. Okay, good! Then on to Europe, we’re building two facilities in Denmark; one in order to help us hit the ground running, is 100,000 square foot retrofitted greenhouse. The big one, of course, is Auroroa Nordic, and that’s the 1 million square foot Sky-class facility that we’re building in Odensk. And I think that captures all of them, with the exception of ICC Labs. Now, ICC in Latin America is an acquisition that’s underway. We haven’t closed it yet, but once we have closed that, there’ll be additional capacity in Uruguay and Colombia to add to the Aurora family.
You know, I really do need that cheat sheet we’ve talked about before!
James West: Sure. If viewers want to go check out our coverage of ICC Labs, back then it was called International Cannabis Corp. and we interviewed the CEO, Guillermo del Monte.
Cam Battley: You enjoy saying that, don’t you? It’s a great name.
James West: It is. Anyways, Guillermo’s moved on; the new crew is now Aurora, so that has great implications for the significance of that. Why? Because Uruguay, due to its geographical positioning, can grow a lot of cannabis outdoors, and in the hemp universe…
Cam Battley: Cannabis, hemp, we’re in both businesses in a very, very big way. Both of them are valuable, both of them will be huge global industries. We love both plants.
James West: So let’s talk a bit about some of the acquisitions that we haven’t touched on, because to really fully grasp the Aurora sort of matrix of companies takes a little bit of thought and understanding. But so we saw a press release from the liquor company that you guys acquired 20 percent of –
Cam Battley: Alcanna. 25.
James West: Alcanna, and they were going to roll out 14 stores and call them Aurora, but they had to change the name to Nova Cannabis.
Cam Battley: Well, we have to keep the regulators happy, and in Alberta, they said ‘Don’t call it Aurora, call it something else’. So it’ll look like Aurora, it’ll sound like Aurora, it’ll be, you know, we’ll be supplying, among other companies, we’ll be supplying our cannabis products to them, but it’ll be called Nova. And they did very well – Alcanna did very well. That management team deserves a lot of credit. They ended up, of the first 17 licensed in Alberta announced by the AGLC, they got five, and in excellent locations. So they’re doing a really, really good job getting ramped up very quickly, and of course, they have their eye on Ontario, as well. And I have full confidence that they’re going to do exceedingly well in Ontario.
James West: Okay, so just let’s wrap it up, here. What are the Top 5 value catalysts that investors can watch for in 2018 that are –
Cam Battley: In 2019? Additional capacity, obviously. New product forms. Remember that, according to the legislation, the Cannabis Act, the new rgulations that allow for concentrates and edibles have to be in place by one year post-legalization. That doesn’t mean that it will be, post-legalization. So I think that we’re going to see some new product forms permitted under regulation from Health Canada – perhaps things like vape pens, which are a major segment of the market in the Canadian gray market, and in the states that have legalized cannabis for consumer use. I think we’ll see things like vape pens come on the market earlier in 2019, and that’ll be huge.
You know, if you’ve seen those vape pens – I know you have.
James West: I was gonna say, I don’t just look at them, I mean, I’ve tried them!
Cam Battley: Well, so they operate well, depending on the technology, and they’re very discreet; you can stick them in your pocket, your purse, you know, they make nothing but vapour. It’s an additional segment to the market that we anticipate being in. And all of these additional segments will be rolling out over the course of 2019. So, more production, new product forms, new markets opening up – for us, that’s a big one, because we are present in Europe in a very big way.
A week and a half ago, our senior management team from Canada, we huddled with our European management team in Berlin for a weekend, and we rare very excited about what’s happening there. Additional markets cascading open, we’ve got a very, very talented team over there, and I think we’re going to keep killing it in Europe where, I think at the moment, it’s fair to say that we’re the market leader.
James West: Okay. Quick question from a viewer: Is Aurora planning to go into the performance beverages space?
Cam Battley: Infused beverages. Absolutely. We’ve indicated that some time ago, that we do. We intend on being in every single segment of the market.
James West: Okay, second part of that question: how do you deal with the idea that cannabinoids are unstable in the presence of fats and acids in foodstuffs and beverages?
Cam Battley: There are technologies available that allow cannabis, or sorry, the cannabinoids to be extracted and stay in solution in the beverages. And in addition, importantly as well, to have rapid onset of action so you’re not waiting an hour or two, which is typically the case when you ingest cannabis. And then also, a shorter duration of action, which makes it more competitive with a beer or a glass of wine.
James West: Aurora has that already taken care of?
Cam Battley: I have said all I want to say today. Remember, we don’t talk about business development until it’s fully baked.
James West: I tried to put him on the spot, damn. Foiled again! Anyways, Cam’s going to be back repeatedly throughout 2018 and ’19, and we’ll see you guys soon.
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