Aurora Cannabis Inc. (OTCQX: ACBFF) through its wholly-owned subsidiary, Aurora Cannabis Enterprises Inc., is a licensed producer of medical cannabis under Health Canada’s Access to Cannabis for Medical Purposes Regulations(“ACMPR”).
Aurora has positioned itself to be one of the most significant suppliers of the growing demand for medical and legal recreational in Canada and other parts of the world. The company continues to experience increasing patient count, and German exports continue to drive the overall revenue and margins up.
Aurora Recorded $11.7 million in revenues, up 201% from Q2 2017 and up 41.8% sequentially from Q1 2018. The company is also sitting on significant cash in hand and is looking for ways to raise more to maintain growth momentum and expand overall capacity.
With three production licenses, over 240,000 kg per annum in pro-forma funded capacity, and multiple distribution channels, the company is well positioned to pursue accelerated growth in the domestic and international medical markets.
Recent Events
June 12, 2018. Aurora Cannabis and Anandia Laboratories Inc. (“Anandia”) announced today that they have signed a binding term sheet whereby Aurora intends to acquire all of the issued and outstanding common shares of privately-held Anandia in an all share transaction valued at approximately $115 million on a fully diluted basis. https://finance.yahoo.com/news/aurora-cannabis-acquire-cannabis-science-110000804.html
June 11, 2018. Aurora announced that it has signed a cannabis flower and trim supply agreement with Ascent Industries Corp’s wholly-owned subsidiary, Agrima Botanicals Corp. (“Agrima”), a licensed producer of medical cannabis pursuant to Health Canada’s Access to Cannabis for Medical Purposes Regulations. https://finance.yahoo.com/news/aurora-cannabis-signs-supply-agreement-110000494.html
June 7, 2018. Aurora and Capcium Inc. announced today that the companies have signed a strategic agreement to produce high quality cannabis-based softgels for patients. Additionally, Aurora has acquired a 19.99% ownership interest in Capcium by way of a non-brokered private placement for consideration of $10 million. https://finance.yahoo.com/news/aurora-cannabis-enters-global-softgel-111500685.html
June 7, 2018. Aurora Cannabis comments on Canadian Senate’s vote in favor of Bill C-45, which governs the legalization of the adult consumer use of cannabis. “This truly is a monumental day for Canada and the cannabis movement, with the ground-breaking Senate vote to pass Bill C-45 representing a major milestone, strengthening our global leadership in the cannabis sector, and making this country the first in the Group of Seven Nations (G7) to take this historic step.” https://finance.yahoo.com/news/aurora-cannabis-welcomes-historic-senate-043000455.html
May 8, 2018. Aurora announced its financial and operational results for the third quarter of fiscal 2018, ended March 31, 2018. Aurora continues to build a vertically integrated, and geographically and horizontally diversified cannabis company. During and subsequent to the quarter, the Company entered into a number of strategic transactions and partnerships to drive growth. https://finance.yahoo.com/news/aurora-cannabis-announces-q3-fiscal-110000331.html
About
Aurora’s wholly-owned subsidiary, Aurora Cannabis Enterprises Inc., is a licensed producer of medical cannabis pursuant to Health Canada’s Access to Cannabis for Medical Purposes Regulations (“ACMPR”). The Company operates a 55,200 square foot, state-of-the-art production facility in Mountain View County, Alberta, known as “Aurora Mountain”, and a second 40,000 square foot high-technology production facility known as “Aurora Vie” in Pointe-Claire, Quebec on Montreal’s West Island. In January 2018, Aurora’s 800,000 square foot flagship cultivation facility, Aurora Sky, located at the Edmonton International Airport, was licensed. Once at full capacity, Aurora Sky is expected to produce over 100,000 kg per annum of cannabis. Aurora is completing a facility in Lachute, Quebec utilizing its wholly owned subsidiary Aurora Larssen Projects Inc.
Aurora is close to completion of the acquisition of all the outstanding shares of CanniMed Therapeutics Inc, Canada’s most experienced licensed producer of medical cannabis, adding over 20,000 kg per annum in funded capacity, as well as Canada’s strongest medical cannabis brand.
Aurora also owns Berlin-based Pedanios, the leading wholesale importer, exporter, and distributor of medical cannabis in the European Union. The Company owns 51% of Aurora Nordic, which will be constructing a 1,000,000 square foot hybrid greenhouse in Odense, Denmark. The Company offers further differentiation through its acquisition of BC Northern Lights Ltd. and Urban Cultivator Inc., industry leaders, respectively, in the production and sale of proprietary systems for the safe, efficient and high-yield indoor cultivation of cannabis, and in state-of-the-art indoor gardening appliances for the cultivation of organic microgreens, vegetables and herbs in home and professional kitchens.
Aurora holds a 19.88% ownership interest in Liquor Stores N.A., (“LIQ”) who are developing a cannabis retail network in Western Canada. In addition, the Company holds approximately 17.23% of the issued shares in leading extraction technology company Radient Technologies Inc and has a strategic investment in Hempco Food and Fiber Inc., with options to increase ownership stake to over 50%. Aurora is also the cornerstone investor in two other licensed producers, with a 22.9% stake in Cann Group Limited, the first Australian company licensed to conduct research on and cultivate medical cannabis, and a 17.62% stake in Canadian producer The Green Organic Dutchman Ltd., with options to increase to majority ownership.
Aurora is also traded on the TSX Exchange under the symbol (ACB).
Analysts
Analysts believe, in a short span of time, Aurora has established itself as a global leader in the cannabis sector. Aurora is on a rapid growth trajectory to become an established conglomerate spanning across production, retailing, ancillary and adjacent markets. Additionally, it is likely to be leading supplier to the emerging European medical cannabis market. The pending acquisition of CanniMed will boost its existing production capacities to help prepare itself for the upcoming legalization. Finally, the company’s partnership with Liquor Stores N.A. shortens it’s time to market in creating a vast bricks-and-mortar cannabis retail network in preparation for the adult consumer use market.
Financial review Q3 2018
ACBFF has a fiscal year end of June 30th
Revenues for the third quarter of fiscal 2018 were $16.1 million, up 211.1% from the same quarter in the prior year and up 37.6% sequentially from the previous quarter. Revenue growth compared to the same quarter in the prior year was attributable mainly to higher patient numbers, higher average selling price per gram due to higher selling prices for oils, the development of new markets (Europe), and new revenues streams (product diversification through the acquisitions of Urban Cultivator, BC Northern Lights, ALPS). As CanniMed was only consolidated as of March 15, 2018, its contribution to growth was limited.
The average price of product sold increased by 20.3% over Q3 2017 from $6.64 to $7.99 per gram, attributable mainly to increases in cannabis oils sold.
Total product sold for the period was 1,352,982 grams of dried cannabis and cannabis oils, up 107.2% as compared to the third quarter of 2017, and up 16.5% from Q2 2018.
Revenues from cannabis oil sales increased by 44.4% compared to the Q2 2018. The Company recorded no revenues from oil sales in the same quarter for the prior year. Compared to Q2 2018, the average selling price fell from $8.36 to $7.99 as the Company increased wholesale bulk sales of dried cannabis, and due to higher cannabis consumption for oil extraction.
No International cannabis sales were recorded in the second quarter of 2017. Entry in this new market enabled the Company to develop a new revenue stream, generating $2.3 million for the quarter. Product availability from the Company’s fully optimized Mountain facility restricted growth in Germany. While European revenues for the period declined slightly (6.1%), in March Pedanios recorded its first month with sales exceeding 100kg. The Company anticipates that with Aurora Vie and Aurora Sky coming online, the availability of product for the international market will increase.
Cost of sales
Included in cost of sales for the three months ended March 31, 2018 were cost of goods sold of $6.8 million, unrealized gain on changes in fair value of biological assets of $2.5 million, and unrealized loss on changes in fair value on sale of inventory of $4.2 million.
The increase in cost of goods sold during the period under review was largely attributable to increases in production and production yields, as well as contribution from the Company’s new subsidiaries BCNL, UCI and Hempco.
Cash costs of sales per gram of dried cannabis produced during the quarter increased slightly, coming in at $1.80 for Q2 2018, as compared to $1.74 for Q2 2018. The difference is explained predominantly through higher seasonal utility costs and overhead expenses.
Gross Profit
Gross profit, before the effect of changes in fair value, was $9.3 million, a 216% increase from Q3 2017, attributable mainly to higher business volume related to a strong increase in registered patient numbers and an increase in the average price per gram of product sold, revenues generated in Germany through the Company`s subsidiary Pedanios, as well as the contribution from the Company`s subsidiaries BCNL, UCL and Hempco.
Gross profit after the effect of changes in fair value was $7.6 million for the three months ended March 31, 2018, as compared to $5.8 million for the three months ended March 31, 2017. The increase was primarily attributable to the increase in revenues as described above, as well as the gain on the net effect of changes in fair value of biological assets and inventory.
General & Administrative Costs
General and administration costs increased by $7.8 million to $9.8 million for the quarter, as compared to Q3 2017, attributable primarily to increases in corporate and general administrative activities in support of Aurora’s continues growth initiatives in Canada and Germany and expanding operations through its newly acquired subsidiaries.
Sales & Marketing
Sales and marketing costs were $5.9 million in Q3 2018, up $3.2 million compared to Q3 2017, attributable mainly to increased service fees paid in relation to significant growth in patient volumes serviced by CanvasRx, as well as higher selling and client care expenses related to a substantial increase in registered patients and resulting business volume.
Acquisition and Project Evaluation Costs
Acquisition and project evaluation costs for the quarter increased by $5.5 million as compared to the same quarter in the prior year. The Company incurred legal, consulting and advisory fees relating to business acquisitions and due diligence activities as part of its aggressive domestic and international expansion strategy, with primarily $5.5 million attributable to the CanniMed Offer.
Other Income
The company recognized an unrealized gain on marketable securities of $12.6 million, primarily relating to the acquisition-date fair value of 700,600 CanniMed shares acquired in the open market.
Additionally, the Company recorded in other comprehensive income an unrealized loss on marketable securities of $12.0 million for the quarter, attributable to the investment in common shares of Radient and Micron, offset by the reversal of $23.5 in unrealized losses on the investment in CanniMed’s shares. The unrealized loss in CanniMed shares were reversed upon the Company obtaining control of CanniMed at which point the fair value of the shares was recorded as part of the investment in CanniMed, with the corresponding gain recognized in the statement of operations and comprehensive loss.
Net Loss
Net loss of $20.8 million for the period under review was primarily attributable to increases in business acquisition costs related to the CanniMed acquisition, as well as share-based payments, offset partially by net unrealized gains from marketable securities and derivatives of $10.9 million.
Liquidity and Capital Resources
The Company strengthened its balance sheet and liquidity position during the third quarter of 2018 with $356 million in new funds.
Stock influences and risk factors
- The positive outcome of the upcoming catalyst (as outlined above), would be the key near-term trigger for the company
- The key near to medium term drivers would be to the legalization of recreational marijuana in Canada, further improving its cash position to invest in increasing capacity and any significant advancement in Germany which would be a significant contributor to profitability and earnings improvement.
- In this sector, the regulatory framework and science are rapidly changing and evolving. Therefore, new companies are emerging, and regulatory risk always exists for the players in the industry.
Stock chart
On Tuesday, June 12, 2018 ACBFF shares were trading at $6.63 on traded volume of 585K shares. The current RSI (14) is 50.66
At $6.63, ACBFF shares are trading above their 50 DMA of $6.40 and above their 200 DMA of $5.95.
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