Aurora Cannabis (ACB) is one of the major licensed Canadian cannabis growers. Established in 2006, the company is a pioneer in growing licensed marijuana, which it received in 2014. It is one of the largest distributors and importers of medical marijuana in the European Union. The medical cannabis leader in Europe and Latin America, Aurora operates in about 25 countries around the globe and has 15 manufacturing centers. Moreover, it has cutting-edge technology present in every aspect of its facilities.
Aurora was originally developed as Milk Capital Corp. Later, the company changed its name to Prescient Mining Corp in 2010. Finally, in 2014, the company became Aurora Cannabis was finalized.
Initial development of Aurora
Terry Booth, Steve Dobler, Dale Lesack, and Christopher Mayerson invested approximately $5 million and created Aurora Cannabis. All four entrepreneurs had a passion for cultivating high-quality marijuana. They planned to set up the company in Alberta to reap the benefits of lower tax rates and enjoy the associated credit facilities. Currently, Booth has been the CEO of six other companies. Dobler is the acting president of Aurora Cannabis, and he has served in principal positions in several Canadian companies in the past 25 years.
Chris Mayerson is currently the CEO of SpaceBear, a producer of beverages containing terpene. Also, he is the Director of Genetics for Aurora Cannabis and Director of Cultivation for Aloha Green Apothecary.
This popular cannabis company went public with an IPO in September 2007. Shares of Aurora began trading on the largest stock exchange in Canada, the Toronto Stock Exchange. On October 23, 2018, ACB shares were listed on the New York Stock Exchange. Its shares fell 9% on its IPO day.
Vision: Long-term growth and sustainable profitability
Over the long term, Aurora aims to create a “world-class cultivation platform producing high-quality, consistent cannabis for both global medical and the Canadian consumer use markets.” To realize this, the company plans to “achieve large-scale growth, and long-term sustainable profitability.” The company plans to achieve this goal over three stages.
In the short term, Aurora targets to generate scale benefits by reducing costs. Meanwhile, it also plans to strengthen its position in the global medical cannabis, consumer cannabis, and hemp-driven CBD markets. All these markets are emerging and fast-growing. According to the company, the entire global cannabis market presents a nearly $200 billion market opportunity by 2025. More than 57% of this market opportunity is from the global consumer market.
In the medium term, Aurora plans to produce high-margin products and cash in from them as well. It seeks to secure a higher margin and aspires to become a leader in the global cannabis sector.
As a result, the company implemented several strategic acquisitions and partnerships to expand its global presence.
Horizontal acquisition deals allowing global expansion
Aurora Cannabis’s growth has primarily occurred through strategic acquisitions and partnerships since August 2016. It has closed nearly 17 deals since then. We will cover some of the important deals in detail below.
Recent Hempco acquisition
Aurora acquired a 51% stake of Hempco in November 2017 and the rest in August 2019 for a valuation of 63.4 million Canadian dollars. According to Aurora, the early acquisition in 2017 enabled it to have “low-cost, high-volume access to raw hemp material for the extraction of CBD.” This is most popular for its benefits related to a broad array of health issues.
Moreover, Hempco’s complete consolidation of its infrastructure points toward capacity expansion, access to brands, and supply chain systems. This could help Aurora take advantage of the potential present in the global CBD wellness market.
CanniMed and MedReleaf
In March 2018, Aurora acquired an 87.2% stake in CanniMed, a Canadian pharmaceutical cannabis company, for $837.9 million. This acquisition enabled Aurora to scale up its capacity, boost its global presence, expand its research and development portfolio, and fuel patient count.
In July 2018, the company acquired MedReleaf, a Canadian cannabis company previously listed for a huge consideration of $2.5 billion. With this acquisition, Aurora planned to expand its production capacity, strengthen international positioning, widen its research and development portfolio, and increase patient count.
Moreover, both acquisitions accounted for more than 36% of its cannabis net revenue for the fiscal year ended June 30, 2019. Of this, MedReleaf was the major revenue contributor.
Capacity expansions to leverage economies of scale
To achieve its short-term plans of expanding its production facilities, the company has entered into various arrangements with its peers since its inception. In preparation for Cannabis 2.0, Aurora Cannabis issued a notice confirming the establishment of Aurora Air. Aurora Air is a production unit that expands to 20,000 square feet located near Aurora Sky. This setup would make use of several production lines to produce various edible product groups.
On October 3, the company declared that it was nearly done building Aurora Polaris. This facility would enable the company to produce cannabis-derived products such as vapes and edibles. Aurora Cannabis expects Aurora Polaris to become operational on October 31.
Consumer cannabis segment in the lead
The company operates across three segments—medical, consumer, and wholesale bulk cannabis. While the company leads in the medical market, the revenue from the consumer cannabis segment signaled stunning growth.
For the fiscal year ended June 30, 2019, the medical cannabis segment contributed 43% to its revenue, making it the largest revenue contributor. However, the consumer cannabis segment closely followed this with a 39% revenue contribution during the same period. Based on the Q4 2019 numbers, most of the revenue contribution came from the consumer cannabis segment at 47%. This growth occurred after the development of the Canadian consumer market in October 2018.
In Q4, the consumer cannabis segment revenue grew by 52% quarter-over-quarter, largely driven by the ongoing demand for Aurora’s products in Canada. We expect this trend to continue, as the company believes in the rising traction in the global medical cannabis market. This would eventually lead to a rise in the legalization of adult-use consumer markets.
The company generated gross margins of nearly 55% from both segments in the fiscal year ended June 30, 2019. Individually, the company’s high-margin-producing segment is medical cannabis at 58% in the same period.
Consumer cannabis followed this with a 52% margin. The higher margin from the medical cannabis segment is from the sale of its high-margin premium products. Aurora Growth leverages its supply agreements to offer a wide range of premium products.
Products and Services
Aurora’s products include oils, soft gels, and dry flowers from the medical segment. The company markets products such as edibles, vape pens, infused beverages, and gel caps under the consumer segment. In fiscal 2019, the company also developed cannabidiol, vape cartridges, soft gel capsules, sprays, hemp oil tinctures, and pre-rolls.
In 2019, the company plans to expand its product line to a new variety of vapes, concentrates, and edibles. This includes sugar wax, live rosin, and shatter under concentrates; while gummies, chocolates, baked goods, and mints are categorized under edibles.
Some of Aurora’s well-known medical brands include MedReleaf, CanniMed, BIDIOL, and ALTAVIE.
Cannabis 2.0: New product launches
Cannabis 2.0 involves the next round of legalization of products including edibles and drinks in Canada. The one-year commemoration of the legalization of cannabis in Canada occurred on October 26, 2019. Due to this occasion, Aurora Cannabis made a public statement regarding its introduction of edibles, concentrates, and vapes in December. To achieve this, the company tactically chose these manufacturing facility locations to achieve cost-efficient distribution. With this introduction, the company expects to expand its presence in the Canadian market.
Moreover, Aurora Cannabis targets the cannabis-infused edibles market with the launch of products including baked goods, chocolates, and gummies. According to Deloitte, the cannabis-infused edibles market is worth 1.6 billion Canadian dollars. To realize the benefits of this immense opportunity, the company agreed to partner with two companies in the edibles segment.
Firstly, the company signed a two-year licensing agreement with JACEK Chocolate Couture, an Alberta-based chocolate producer. With this arrangement, Aurora plans to leverage JACEK’s intellectual property to mass-produce cannabis-infused chocolates.
Secondly, the company entered into a partnership deal with WG Pro-Manufacturing and Touché Bakery, a packaged confectionary food supplier. This deal enabled Aurora to supply cannabis-infused baked goods.