Aurora Cannabis Inc (TSE:ACB | NYSE:ACB) Executing on All Fronts
Aurora Cannabis Inc (TSE:ACB) (NYSE:ACB) (FRA:21P) CCO Cam Battley showers the company’s leadership team with praise, as Aurora continues to successfully execute its vision. Aurora is positioning itself in new markets internationally where it has a first or early mover advantage. The company’s recently announced deal with Farmacias Magistrales in Mexico brings Aurora’s footprint to 23 countries. Battley explains that the company is preparing for the European cannabis market boom by having two EU GMP certified facilities and existing agreements that allow Aurora to enter each new market in the Eurozone as additional countries come online. As the Farm Bill moves closer to being signed, Aurora Cannabis Inc anticipated the huge potential of industrial hemp and CBDs in advance by securing agreements with extractors like Hempco Food and Fiber Inc (CVE:HEMP) (OTCMKTS:HMPPF) (FRA:22Y), Agropro UAB, and ICC Labs Inc in strategic geographic regions. As 2019 approaches, Battley is ecstatic about the revenue potential of high-margin products such as medical and recreational softgels, which the company produces at Aurora V, a facility that can manufacture 1.4 million capsules weekly.
James West: Cam, welcome back.
Cam Battley: Nice to see you.
James West: Cam, Aurora has been executing on all fronts.
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Cam Battley: We’ve been executing like mad.
James West: I have to say that a lot of the naysayers out there who were skeptical about your ability to bring all of these diverse assets into one cohesive functioning globalized monster are being proven incrementally wrong day by day.
Cam Battley: Our business strategy turns out was good from the beginning and we’ve got the horses to actually make it work. We’ve got some amazing people like Neil Belot who is our head of Global Business Development. So, he’s been taking the lead flying all over the world seizing the opportunities that we needed partners and companies to acquire to position us as first or early movers in market after market after market.
We’ve got Andres Jerome, our head of integration and as I’ve made very, very clear on multiple occasions integration is a core capability at Aurora and Andre and his team have been doing a fantastic job. He’s closed and finished the integration of MedReleaf. Before that he did the same thing with CanniMed and with Anandia. We’re finishing that up as well and doing it very carefully with Anandia by the way. That’s not a typical operation, right. That’s a science operation. And so, we’re using very, very light touch with that part of the operation.
James West: We’ll have to get Jonathan in here because he’s been on our show a couple times.
Cam Battley: Jonathan Page, yes, yes, really smart guy, but really nice guy as well and he’s our newly appointed Chief Science Officer. So it’s really, I mean from the my perspective it’s, a team of rock stars and I’m very, very proud of it.
James West: Cool. Wow, you recently announced that you had made an acquisition in Mexico.
Cam Battley: In Mexico!
James West: And so, there’s you know, there’s been a great deal of criticism about the mark-up in assets being rolled into publicly traded cannabis companies and so…
Cam Battley: I can assure you that nobody on our side had any prior ownership good of that company. So before you even go there.
James West: What is the cost of the Mexican acquisition? It was not disclosed in the press release.
Cam Battley: No, it’s not disclosed for a couple of reasons. One, we haven’t completed our DD. We’re going to complete our due diligence on that and there will be subsequent announcements and once we get to the definitive, obviously that all that information will be out there and it’s got to go to the board as well. We’ve got a few more steps in that process. In addition, it’s also for competitive reasons. We don’t necessarily want to give away what we’re paying for certain assets certainly until it’s done and especially when we’re still in the hunt in other parts of the world for additional assets that compliment our story and our strategy.
James West: Well fantastic. What other countries are you looking at that really excite you?
Cam Battley: The UK is one that everybody’s looking at for obvious reasons. It’s a big population, around 65 million, and it’s so exciting because you know, I’ve said before at the beginning of 2018 nobody saw the UK as a likely medical cannabis market and then because of the stories of a couple of very sick little boys with epilepsy that actually made it real to the population of the UK. It wasn’t just conceptual consideration of a medical cannabis market and you know, all the stigma that traditionally attaches to cannabis.
They actually thought about real people with real health conditions who could benefit from medical cannabis and it changed things so quickly. So that’s one. I think France is going to be a mover. There’s momentum building in France, you know, that’s another large population but equivalent to the UK and then of course, there are a number that we were already in: Poland where we started to operate and sell product and that’s a population slightly larger than Canada’s and we recently announced Luxembourg and Czech Republic and now Mexico. So, the totality of our global operations is expanding at an incredible rate. I think we’re in 23 countries right now if I have that count correct.
James West: Wow, fantastic. So, the European situation is interesting to me because you know the Eurozone in some respects acts as a single market.
Cam Battley: Yes.
James West: And that’s the whole point of the Eurozone. What do you think the chances are that the Eurozone actually rolls out a Eurozone-wide cannabis policy for both recreational and medical use?
Cam Battley: Well, it’s starting. Right now there’s a process underway to harmonize treatment of medical cannabis, but it’s not a direct process. So, it’s the first step and I can’t recall the word that they use. It’s the first step to you know persuade countries to act in concert and not disturb the common market. I think we will get there. It makes all kinds of sense, you know, we know already that to enter that market we have to on our side have European Union good manufacturing practices EU GMP certification on our production facilities. We actually have, I believe there are six companies in Canada that have EU GMP certification and we’ve got two of them through Aurora and MedReleaf. We also have EU GMP certification on our formerly named Pedanios now Aurora Deutschland distributor. So, we’ve got it all the way across the value chain and that’s pretty cool and it means that we can enter each of these markets as they cascade open.
James West: Yeah, we’ll have to send Fraser out there with the camera crew and create a documentary on the European operations.
Cam Battley: I would love to host that. We can do a little European tour.
James West: Sure. Yeah.
Cam Battley: And you’re going to love our guys in Germany.
James West: Yeah, I could imagine. I’ve never met a German I didn’t like.
Cam Battley: I shouldn’t say just guys. It’s guys and girls. It’s a great team and it’s growing fast.
James West: Awesome. The United States now, everything is evolving, is percolating along there at the passage of the Farm Bill. Well it’s not signed into law yet, but it has been approved in first reading.
Cam Battley: Well, it’s passed both houses. It’s going to the President for signature.
James West: Sure.
Cam Battley: This again is going to create another market that we think is going to be very favorable for us because we know hemp, and we know CBD, and there are not a lot of companies in the world that have our expertise and capabilities with respect to hemp and the creation of hemp derived CBD. If you think about it, we have majority control of HempCo. We took that majority control in part in anticipation that things were going to change in a favorable basis in the US. We also have Agropro in Europe. That’s Lithuanian-based and it’s the largest producer of organic hemp in the European Union. Also, ICC Labs in South America are you know, the core of our Latin American operations, is in both cannabis and hemp. So, we have very specific strategy that we’ll be unveiling over time to see us enter that market in a way that does not upset our exchanges which is always one of our first concerns now.
James West: Sure. About that, the TSX is you know, still saying that there’s no permission for companies operating US cannabis assets on the TSX.
Cam Battley: Cannabis.
James West: Right. So, now that now that CBD from industrial hemp right is federally, you know regulated, does that change that?
Cam Battley: Yeah, it’s time to go back to the exchanges and say what about this?
James West: Yeah, exactly.
Cam Battley: Clearly. We’re not violating any laws and that’s really what they’re most concerned about. This is the first step.
James West: The first step? So, it’s not like everybody’s going to now be able to throw off the camouflage and say okay now we can be blatant about our US interest?
Cam Battley: No, no and it certainly still validates our US strategy with Australis. Just to recap we spun off or divested our US assets by spinning them off to our shareholders and Australis has been busy itself. We’re going to get Scott Dowty the CEO on to see you.
James West: Yeah, we had the CFO here.
Cam Battley: Yes, that’s right. So, they’re assembling those assets and then of course, you know any time that the exchanges tell us that the rules have changed sufficiently in the US we can exercise that back in right that we built in so that we can require up to 40 percent of Australis.
James West: Okay so Australis, just to worry that a bit.
Cam Battley: To worry it?
James West: I mean to worry about it, worry the hive so to speak. I mean so Australis for me has been like a bit surprising because it has not performed with the same dynamism out the chute that Aurora has and not that I would presume to be critical of Scott and his team.
Cam Battley: Different timing, different market, you know, but they’ve acquired some really, really good assets and they’ve shown that they can also work in coordination with Aurora to certain extent. One good example of that is Wagner Dimas out of California which, based on our research, they have the foremost pre-roll technology in the world.
So, Aurora has licensed the rights to the Canadian rights to Wagner Dimas’ pre-rolled technology. That’s where those pre-rolls that you see on the shelves and on the online stores for the province’s right now, that’s where they come from. Then in the U.S Australis has acquired 15% of that company. So, it’s a very attractive asset and one that’s going to be an increasing demand. I think you’ll see that that model replicated by Australis on a go-forward basis.
James West: Sure. Okay, let’s talk financials now a bit for Aurora. What do you project?
Cam Battley: We’re having another good quarter. I’m not projecting just yet. You’re getting ahead of me here don’t get ahead of me, please.
James West: [Laughter]
Cam Battley: But we’re having another good quarter and that’s you know, we will be wrapping it up at the end of December reporting in February and this time by God, we will get credit for a good quarter because you remember what happened in our last reported quarter. We reported in November, that was to September 30th. We had a really good quarter and then we had three other companies report in the two days after us and it kind of brought the market down which is too bad.
James West: Well yeah, the market has been suffering the slings and arrows of a broad sort of general downturn in the economic outlook. I mean, I think the World Bank has reduced its projected global growth. Certainly, the trade war with China and the United States isn’t helping things. And then of course the pressure on interest rates to continue rising and the uncertainty around that has all sort of converged at the final quarter of the year with tax loss selling to make everything look as ugly as anything has in a decade practically.
So, you know, I really look at that.
Cam Battley: That’s okay because investors are going to pay attention and 2019, it’s going to be a year full of capital.
James West: That’s my point. It’s a shopping opportunity. Things are on sale. It’s a discount.
Cam Battley: I don’t mean just for our stock. I mean, I think across the sector there are some gems there’s some really good companies in this sector that been performing well, and you know delivering good quarters. So I do think that there are multiple opportunities and always tell investors not to put all your eggs in one basket, but rather have a basket of stocks if you want to participate in this sector and I tell that directly to our investors as well do your homework and if you like a ACB that’s wonderful, and we’re proud to have you as a shareholder.
But you know have a look at some of the other companies and, particularly companies that have a different strategy because there are different strategies, I think that we’ll succeed in this sector on a global basis.
James West: Well, you make me want to buy the stock right now which is weird because I’m trying not to trade. I’m a horrible trader, I’ve discovered, in the last couple of quarters. Okay. So, then what are the big exciting milestones that investors should be looking out for in 2019?
Cam Battley: There’s a bunch of things and one of them will be the new product forms that we’re allowed to sell in the Canadian consumer market, where by the way Aurora has done way better than expected, you know. We weren’t targeting coming out of the gate faster than everybody else and having the sort of market share that we have but we’ll take it!
It seems to be a holding pretty strong. So, we’ve done very well in the consumer market. We’re going to do even better with the additional products and product forms that will be allowed by new regulation. Remember these have to be in place by one-year post legalization so October 17th, 2019. The word that we’re hearing out of Ottawa is it won’t take that long. I think the government understands that the sooner they allow for additional product forms, concentrates edibles, things like vape pens, cannabis infused beverages, the more successful we’ll be in migrating consumers from the black market to the legal market.
So, it’s in everybody’s interest to do that faster. I think that will happen earlier in the year than anticipated and those are let me emphasize additional higher value-added high margin products and the benefits of the of the new regulations allowing these product forms will go disproportionately to the companies that have already demonstrated those competencies. Aurora, let me remind you, was the first and I think still only company to have been able to get through the Health Canada process to get a vape cartridge on the market. So, we currently have our 55% CBD vape cartridge on the market for our medical patients. We understand how to do this. Our new product development team under Dr. Shane Morris another one of our rock stars has lots of exciting plans for new product forms and formulations and stuff like that.
Another catalyst for us will be in in the very short term the impact of Soft Gel. So, we now have our Soft Gels being produced out of Aurora V out of Montreal. They’re now in both the medical market and the consumer market. That’s a great product. These are 10 milligram capsules. They sell for 45 bucks for 30 capsules. So once again high margin. We’ll be selling as many of those as we can and our capacity at our existing facility Aurora V is to produce up to 1.4 million of those capsules every week.
James West: Hmm. That’s a lot of cake…That’s a lot of pills.
Cam Battley: That’s a lot of pills.
James West: Okay. So where is profitability on the timeline for Aurora?
Cam Battley: Well, you know, I’ve been flirting with this for some time and every time I’ve said cautiously I think you know by the end of 2018. We’ve had a couple of other things come along, opportunities, acquisitions and stuff like that so, we’re still not far off and my feeling is a couple more quarters and we’re there. I think we’ll be there ahead of a lot of other companies. The reason why is simply because revenue is rising so fast. You know, our G&A has been in a pretty hefty because we’ve had things to deal with. We’ve had to deal with integrations from some pretty big companies including MedReleaf and CanniMed and we’ve also expanded around the world. So, our operations are costing us money, but the G&A is not growing, is not going to grow as fast as revenues not even close over subsequent quarters. Our sales and marketing expenses obviously, are going to come down because we saw a kind of a one-time hit in the opportunity with the more flexible regulations ahead of October 17th. That won’t be repeated for some time. So, we’re getting very, very, very close.
James West: Well, that’s great. Okay, Cam, that’s a fantastic update as usual. I’m sure that our audience is doing backflips. You’ve got some great supporters out there.