Apr 5, 2019
‘Our story is maturing’: Aurora Cannabis eyes tie-ups, and promises profitability
We're making a more conscious effort to enhance governance: Aurora executive chair
Aurora Cannabis Inc. is looking for a dance partner – it’s just in no rush to get to the party.
Aurora, one of Canada’s biggest pot companies, is in active discussions with multiple companies in various industries including consumer-packaged goods and beverages, and an announcement could happen in the next six months, said Michael Singer, Aurora’s chairman, in a phone interview.
“We’re looking to continue to grow this business in some of these market segments that we all know are being disrupted by our lovely industry,” Singer said.
While other major Canadian cannabis companies such as Canopy Growth Corp., Tilray Inc., and Cronos Group Inc. have all announced tie-ups with a range of blue-chip firms in beverage, pharmaceutical and tobacco industries, Aurora and Aphria Inc. both stand out as the biggest pot producers without a significant partnership deal.
That’s become a growing focus for the company, Singer said, although he declined to provide any specifics on discussions that Aurora is currently having with potential partners. Singer also declined to comment on the company’s previous talks with Coca-Cola Co. which BNN Bloomberg reported last year, but noted Coca-Cola’s statement at the time signalled the global beverage maker “is a conservative company who clearly is interested like many other companies in this space but is taking baby steps.”
Singer said Aurora is primed to become profitable this quarter, which could open the door for the company to possibly issue a traditional bond or buy back some of its outstanding shares.
“Our story is maturing very well and we believe that's a potential opportunity for us to bring in a traditional bond or that type of capital-raise … to finance the growth of our business,” Singer said.
Those lofty goals come after a mixed quarter for Aurora, which reported its fiscal first-quarter results in February. The Edmonton-based company generated $54.2 million in revenue, up 363 per cent from the same period a year earlier. However, it also posted a $237.7 million loss, compared with a $7.7 million profit in the same period a year ago.
But Aurora maintains one of the highest trailing 12-month gross margins in the cannabis sector at 61 per cent, while its cash costs at $1.92 per gram are also significantly below its peers. That is likely why Aurora’s stock (ACB.TO) has remained an outperformer on the Toronto Stock Exchange, up nearly 81 per cent so far this year.
Meanwhile, those talks with potential partners have accelerated since Aurora hired billionaire investor and consumer goods expert Nelson Peltz as a strategic advisor, Singer said. Peltz was granted 20 million options to purchase Aurora shares at $10.34 each, which could make him the pot firm’s second-largest shareholder.
As well, Aurora announced a short-term shelf prospectus to raise US$750 million over the course of the next 25 months for funds that could be used “as a prudent and long-term strategic measure to provide us with flexibility in access to growth capital.”
“I can tell you from my very first discussion with Nelson several months back, the thing that he thought was most attractive about Aurora was the fact that we hadn't yet partnered with somebody,” Singer said.
“It creates an opportunity to really explore who, and which and how many partners are going to be important to our story going forward.”
Peltz will also use his Wall Street acumen to determine which assets may not be core to Aurora’s business, and that could lead to several potential divestitures, Singer added.
“It could create a lot of optionality and flexibility for us as we move forward as we engage in discussions with partners,” he said.
And while Aurora continues to focus on its domestic operations, including ramping up production to grow enough cannabis to meet Canada’s recreational demand, the company also sees a bigger future in the international medical market.
Aurora’s global strategy is to establish beachhead subsidiaries in countries where medical cannabis is legal or soon-to-be-legal, and then demonstrate it can operate properly within a regulated environment. Singer said that once sentiment builds to legalize pot recreationally in those respective markets, the company will be ready to lead by cloning “the Canada model.”
Those plans came to light on Friday after the company was selected by the German government to cultivate and distribute medical pot in the country, the biggest cannabis market in Europe. Aurora and Aphria were each awarded the maximum number of five of the 13 available lots in the tender over a period of four years.
“We have, by virtue of our Aurora Deutschland operation in Berlin, a leadership position in Germany and we see that as a gateway to continue to build out our medical segment globally. And we're going to dominate there,” Singer added.
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