SEATTLE, WA / ACCESSWIRE / February 25, 2016 / Aurora Cannabis Inc. (OTCQB: ACBFF) (CSE: ACB) recently announced a major milestone - one that could offer a significant boost to the company's bottom line. Specifically, the company has just been granted a license from Canada's federal government to produce "derivative cannabis products", starting with cannabis oils.
However, the company has yet to be issued a sales license for oils, which means that Aurora will not be able capitalize on this lucrative opportunity just yet. Final approval is anticipated within the coming months.
Not only will this pending authorization strengthen Aurora's balance sheet, but it also allows the company to expand its reach to a growing diversity of medical patients in need. They include pediatric patients, as well as the many cancer patients who prefer an alternative medicinal delivery method to smoking.
In anticipation of the granting of a sales license for oils, the company acquired CGMP-compliant CO2 fluid extraction equipment last summer. The equipment is designed for supercritical extraction of the cannabis plant's many active compounds. It also avoids the combustion (destruction) of the plant's most medicinally effective chemicals, including terpenoids.
"Different methods of administration offer different medical benefits," said Aurora Cannabis Chief Brand Officer Neil Belot in the press release announcing the new license. "For patients who are managing certain conditions and symptoms, these products can be more appropriate than dried flower. Aurora's new product line will offer clients more treatment options, allowing them to choose from various forms of cannabis for medical purposes."
Revenue Growth & Profitability
Aurora Cannabis asserts that cannabis extracts could add an additional 30% to its top-line revenue, while also boosting its profit margins due to the efficiencies from producing extract-based products. The company's 55,200 square foot facility is expected to be running at full capacity in the spring of this year with the ability to produce over 8,000 kilograms of dried cannabis per year. With over 550 patients already registered, the company appears ready to begin generating substantial revenue in 2016. Investors in the U.S. extracts space, including companies like CV Sciences (OTCQB: CANV), may want to take a look at diversifying north of the border into Canada's burgeoning market.
"We are thrilled to reach this major milestone," said Aurora Cannabis CEO Terry Booth in the same press release announcing the new license. "Our extract-based products produced under the Aurora Standard will raise the bar for the industry and provide patients across the country with reliable, consistent, contaminant free, cannabis derivative products."
Driven by greater revenue and higher margins, management believes that the new license will help it reach profitability in the shortest time frame of any publicly traded licensed producer in the industry to date.
Profitability has been a challenge for many existing MMPRs, primarily due to the growing pains of Canada's nascent market for pharmaceutical-grade medical marijuana. In many cases, these companies require significant scale in order to achieve profitability, given their large capital investments.
Potential Revenue
The Canadian cannabis industry may still be in its infancy, but many companies are already generating significant revenues. For instance, Aphria Inc. (TSX-V: APH) announced $950,740 in revenue during its first quarter of 2016 (quarter ended August 31, 2015) with over 2,200 enrolled patients. Gross margins at that licensed producer reached an adjusted 58%, which suggests that these companies have a lot of pricing power in this new industry.
Aurora Cannabis anticipates producing around 8,000 kilograms of dried cannabis per year that it is already selling for CDN $8 per gram retail (US $5.80) and CND $5 per gram (US $3.60) on a compassionate basis. Assuming an average selling price of $6 per gram, the company could be looking at generating about CDN $48 million per year in revenue (before oil sales are factored in).
In order to capitalize on pent-up demand among medical patients, the company has implemented a number of marketing programs designed to give it a durable lead in the market. These programs include its successful "Founding 420" program that bestowed a number of benefits to its first four hundred and twenty clients in exchange for detailed feedback on its products, client services, delivery brand, and other key performance indicators.
Accordingly, the company has acquired more than 550 registered patients since the start of the year, and is likely to attract many more with its cost and quality advantages. The recent extracts license could further extend these revenues and enhance its profitability.
Looking Ahead
In terms of the big picture, Canada's fast-emerging federally-endorsed medical marijuana industry could reach up to $4 billion in size over the coming years, according to market analysts. This would be subject to the Canadian government following through on its promise to legalize recreational cannabis within the next couple of years.
With both a cost and quality advantage, Aurora looks to be well positioned to become a best-in-class industry leader. The company has the potential to generate around CDN $48 million per year in revenues from its existing facility by way of dried flower alone, before pending sales of high-margins cannabis oils are factored-in. Investors should be keeping an eye on Aurora over the coming months as the company grows its customer base and diversifies its product lines.
For more information, visit the company's website at www.auroramj.com.
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