Industry-Frontrunner Aurora Cannabis Shoots for Supremacy
By Marc Davis
Go big or go home.
The world’s most successful companies have always come out on top by embracing this blitzkrieg doctrine.
So who will “go big” enough to dominate Canada’s next multi-billion dollar marketplace?
By some key indications, the odds favour Aurora Cannabis.
Most importantly, this high-flying start-up is going big — and on an epic scale.
In so doing, it’s laying down the gauntlet to a tiny handful of legitimate rivals. It’s scaling-up to be bigger than anyone else. And insiders say it says it can also thrive as the lowest-cost mass producer in Canada.
This is how Aurora is gearing-up to capture the lion’s share of an extraordinarily lucrative new industry. I’m talking about the looming legalized mainstreaming of recreational cannabis.
It’ll also empower the company to burnish its brand within the investment community by aggressively raising its corporate profile.
Fortunately for Aurora, there’s already some precedent for its claim to future fame in Canada’s rapidly-unfolding cannabis revolution. The well-financed, Vancouver-headquartered company is increasingly becoming known as an emerging leader in the burgeoning medical marijuana industry. And sales are ramping-up fast.
So Aurora is taking the next important step in its evolution by acquiring a public listing on Canada’s TSX Venture Exchange. As of last Wednesday, the company now trades under the symbol ACB.
Will Aurora be the Poster Boy for an Epic New Industry?
So what’s ultimately at stake?
An estimated eight million Canadians (almost one in every three adults) are expected to become regular consumers of cannabis once the recreational market opens up.
If that sounds inflated, consider this: Up to 5.5 million Canadians already smoke cannabis (mostly illegally), according to a recent poll.
When Canada’s prohibition ends, Aurora is determined to seize the advantage of being an early market entrant that can scale-up faster than anyone else.
So here’s how it recently laid down the gauntlet to 35 or so competitors (mostly much smaller ones) in Canada’s federally-regulated, large-scale medical cannabis cultivation industry.
Aurora announced in late August that it was boosting its growing capacity more than ten-fold. This involves an additional 650,000 square feet (more than ten football fields in combined size) of high-tech greenhouses.
This is where a dizzying array of automated growing apparatus, as well as science-driven growing methodologies, will be used to optimize output. In fact, it’s expected to be the most technologically-advanced greenhouse in the world, according to insiders.
What does all of this mean to investors?
It’s simple: It translates into the prospect of competition-crushing economies of scale. And by also pioneering all kinds of technological innovations, Aurora can continue to relentlessly driving costs down further. The end result is a winning formula for big-league success.
Do we know for sure that Aurora can execute on an astonishingly large scale within two years?
It’s not a foregone conclusion. But we’re seeing very encouraging signs. For instance, consider the company’s accomplished track record to date, which I’ll discuss next.
Proof in the Pudding
Most notably, Aurora has quickly taken giant strides towards optimizing its current business model from a standing start in early 2015 (when it was issued a growing licence by Health Canada).
Over the past 18 months, Aurora has worked at perfecting the science of grown standardized strains of medical-grade cannabis at its existing 55,200 square-foot facility in rural Mountain View County, less than a hour’s drive north of Calgary.
In the process, it has become one of the lowest-cost producers in North America — without compromising the quality of its products.
This has also been achieved thanks to Alberta’s favourable corporate tax rate, as well as cost inputs that are among the lowest in the industry, including inexpensive electricity.
Only since the start of this year has Aurora has been given the go-ahead by federal regulators to begin selling dried cannabis to patients in need. Now sales are growing month-on-month by about 20%, translating into revenues exceeding $1 million for August. However, since Aurora and its peers aren’t legally allowed to advertise as yet, it took three months to acquire its first 1,000 clients.
Even though sales growth is still in its infancy, here’s what’s really notable so far: There’s a very high retention rate for clients/patients, according to insiders. This one metric alone speaks to Aurora’s fast-growing reputation for industry-leading client care.
Ready for the Big Show?
If Aurora can successfully transition this quality of service to the recreational market, it stands to earn brand loyalty on a massive scale.
It has already developed a well-crafted business model for medical marijuana that can be viewed as a dress rehearsal for the big show. And Aurora’s commitment to being able to scale-up in a hurry should be very appealing to shrewd, growth-oriented investors.
Therefore, Aurora’s rise to prominence and hockey stick sales growth in the medical marijuana business offers a solid underpinning for its share price. In other words, the company is apparently destined to succeed in this thriving marketplace.
In fact, the company has a rate of customer growth that is believed to be unmatched in the industry in Canada, insiders say.
However, the “blue sky” potential for investors to hit the ball out of the park is probably still at least a couple of years away. This is because leading industry experts predict that legalization won’t arrive until 2018.
Meanwhile, Aurora still needs time to ready itself for this explosive new market. The first 250,000-square-foot stage of its new greenhouse complex should be operational by next summer, while the rest of the project should be completed the following spring.
But when the time arrives, Aurora should be well-positioned to capture the lion’s share of the recreational market.
How to Dominate a New Multi-Billion Dollar Market
What does this all mean to early-stage investors looking for a big win?
It’ll ultimately make Aurora the world’s largest grower of top-quality, pharmaceutical-grade cannabis –- which can be achieved at one of the lowest costs in the industry in all of North America. So the company can always price its products affordably.
So here’s the biggest lever to higher share price multiplies: Within two years, Aurora aims to ramp-up to an annual output of 70,000 kilograms.
Exactly much dried cannabis is that?
It’s comparable to 140 million marijuana “joints” (though there are various other ways of consuming cannabis without smoking it). So if you’re wondering whether Aurora can service a marketplace of millions, the answer is an emphatic ‘Yes’.
Additionally, an overriding emphasis on cost containment promises to eventually make Aurora’s pending profit margins among the highest in the industry. This in particular represents a major de-risking strategy in terms of the company’s ever-improving business metrics.
Accordingly, Aurora is already attracting the smart money. Big-league institutional investors have committed much of the $50 million or so dollars that have flowed into Aurora’s treasury so far this year.
They tend to view Aurora as a company that is making the quantum leap from a risky start-up to an emerging growth stock with the potential for exponential growth.
The realization of higher share price multiples is a common outcome when a company makes this transition of graduation to a higher investment status, known in investment circles as a “re-rating”.
A Best-in-Class Industry Leader?
Aurora’s cannabis is grown to the very highest standards in the industry, according to Terry Booth, the company’s personable CEO.
It’s a bold -- even audacious -- claim. But Booth says he can back it up. First he explains that Aurora has become proficient in standardizing each of its many diverse strains of medical marijuana. In other words, each variety is consistent from plant to plant -- as well as from crop to crop -- in terms of composition, potency and therapeutic effect.
Not only is this dialled-in quality control essential for the medical marijuana market but it will also offer key competitive advantages once cannabis is legalized. In fact, the recreational market will surely eclipse the federally-regulated medical marijuana business – which still only services fewer than 100,000 people so far.
Booth explains that Aurora is committed to cultivating excellent products, while also ensuring optimal quality control. And these two major catalysts for success are central to the company’s core competency, he adds.
This strategy is already paying off: Aurora is quickly establishing brand loyalty among consumers.
One of the company's key differentiators is that it doesn't use any pesticides, Booth emphasises. This is a big deal, especially for patients with severely weakened immune systems. So too is this the case for many other health conscious-consumers.
Neither does Aurora gamma-irradiate its products, unlike many of Aurora's competitors. Irradiation is a process that may damage some of the plants' compounds.
Aurora also wants to be known as an innovator of new strains of cannabis that are already making a positive difference in peoples' lives. They include ones that are non-psychoactive (not mood altering) and can therefore be used in paediatric medicine — something that Booth is very proud of.
Right Here, Right Now
Here’s another strategically-shrewd driver for future revenues: The company has a near obsessive preoccupation with having the best customer service in the industry.
This includes same-day delivery — a service that Aurora is still rolling out across Alberta. It will eventually be able to serve up to three million people in that one province alone. Most Canadian urban centres should eventually be covered.
So too is Aurora the first cannabis grower in the world to launch a mobile phone app that registered patients can use to order medical marijuana.
By such innovative means, Aurora is determined to keep its fast-growing clientele loyal. Additionally, companies in emerging industries that can afford to allocate plenty of money to marketing, customer care, and expedited distribution typically end up dominating the competition. The success of Apple and Amazon are great examples of this.
Early-stage investors still haven’t missed the boat with Aurora even though it has been publicly traded on the CSE Exchange since mid 2014. This is because the company has only been legally allowed to sell dried cannabis since January. And that’s kept a lid on the share price until recently.
However, sales are now surpassing $1 million a month and growing at a very impressive rate. This is helping the company’s share price to finally enjoy the formative stages of an ascendant trajectory.
Nonetheless, the big prize in the future legal recreational market. Can Aurora’s successfully execute on its well-financed plans for expansion on a massive scale? If so, then its share price is destined to be a stellar performer that promises to reach much higher multiples.
The author of this article is an Aurora shareholder and I am certainly very biased. But I’ve been professionally involved in the capital markets for nearly 30 years. And when it comes to evaluating start-ups, I’ve learned the hard way more than once the difference between hype and substance.
In this case, I’m convinced Aurora is the real deal. I’ve toured the company’s state-of-the-art growing facilities in Alberta. On several occasions, I’ve also visited its highly professional customer care centre in Vancouver.
Going back as far as 2014, I’ve also met on a regular basis with key management personnel, including Aurora’s workaholic CEO Terry Booth. Most importantly, I’ve witnessed the company do exactly what it says it’s going to do — each and every time.
In the medical cannabis market, it has already demonstrated a proven ability to capture significant market share within months of getting its sales licence. And its client base is growing exponentially.
Accordingly, Aurora offers an especially compelling risk/reward ratio. So when the “winner-takes-most” recreational market for cannabis finally arrives, Aurora appears poised to come out on top. And in terms of financial gains, that should reward early-stage investors with the ultimate high.
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