Aurora Cannabis Inc T.ACB

AURORA DUE DILIGENCE. Must Read!

[marrcoooo]

Aurora Cannabis  ACB.T

The best video Just updated as of October 17. Says it best. Predicting $15-$25 per share by end of next year. 

://www.youtube.com/watch?v=JhmWdZMFs0c<https://www.youtube.com/watch?v=JhmWdZMFs0c>

[https://www.bing.com/th?id=OVP.JWJ9vuNdsXM8p0nF8_Y-BQHgFo&pid=Api]<https://www.youtube.com/watch?v=JhmWdZMFs0c>

Aurora Future Revenue updated<https://www.youtube.com/watch?v=JhmWdZMFs0c>
www.youtube.com<https://www.youtube.com>

https://www.youtube.com/watch?v=uKZap15M3Bo
[https://www.bing.com/th?id=OVP.-V82IKtZD4eVuVCV2sA5FwEsCo&pid=Api]<https://www.youtube.com/watch?v=uKZap15M3Bo>

Aurora Cannabis<https://www.youtube.com/watch?v=uKZap15M3Bo>
www.youtube.com<https://www.youtube.com>
A company analysis of Aurora Cannabis. *Note: Aurora's 55 200 SQFT building is actually located in Alberta Mountain View County, Cremona, not actually in B.C. Sources ...



As promised here is a very brief synopsis of my favorite Pot stock to watch Aurora Cannabis. ACB.T is their symbol on the TSX.


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Click for a simplistic video explaining why things should proceed in a very positive way for Aurora.

https://www.youtube.com/watch?v=6f3uhgPK4mI

[https://www.bing.com/th?id=OVP.5ZERNpWoLg7DWhGCr31fPwEsCo&pid=Api]<https://www.youtube.com/watch?v=6f3uhgPK4mI>

WEED STOCKS: Aurora Cannabis (Hempco, Radient technologies, and Cann Group)<https://www.youtube.com/watch?v=6f3uhgPK4mI>
www.youtube.com<https://www.youtube.com>
Aurora Other Investments in companies. Source: https://www.newswire.ca/news-releases/aurora-cannabis-to-be-cornerstone-investor-in-australian-medical-cannabis...


DD on Aurora Cannabis

Strengths:

Geography
- Proximity to airports for both domestic and international delivery: Aurora Sky (located on Edmonton Int'l Airport grounds and Peloton (15min drive from Pierre Elliott Trudeau International Airport in Montreal)
- Locations in Alberta: lowest corporate taxes (Sky and Cremona facilities) and free water (Cremona facility)
- Diversified geographic footprint: locations in Alberta (Cremona and Sky) and Quebec ($7M acquisition of Peloton) and an investment in Australia (Cann Group)

https://www.newswire.ca/news-releases/aurora-cannabis-to-be-cornerstone-investor-in-australian-medical-cannabis-ipo-617278563.html

Aurora Cannabis to be Cornerstone Investor in Australian ...<https://www.newswire.ca/news-releases/aurora-cannabis-to-be-cornerstone-investor-in-australian-medical-cannabis-ipo-617278563.html>
www.newswire.ca<https://www.newswire.ca>
VANCOUVER, March 28, 2017- Aurora Cannabis to be Cornerstone Investor in Australian Medical Cannabis IPO.


and Germany (Pedanios) https://www.newswire.ca/news-releases/aurora-acquires-german-medical-cannabis-market-leader-pedanios-gmbh-624649463.html

Aurora Acquires German Medical Cannabis Market Leader ...<https://www.newswire.ca/news-releases/aurora-acquires-german-medical-cannabis-market-leader-pedanios-gmbh-624649463.html>
www.newswire.ca<https://www.newswire.ca>
VANCOUVER, May 26, 2017- Aurora Acquires German Medical Cannabis Market Leader Pedanios GmbH.


Strategy
- Purpose-built facilities – autonomous, efficient, and expandable (e.g. Aurora Sky at 800,000 Square Feet) will give Aurora industry leading capacity with this top of the line hybrid greenhouse)
- Strategic M&A: RTI – microwave assisted oil extraction; Peloton – expansion into Eastern Canada; CanvasRx – funnels customers to Aurora and receives $25/mth referral fee per customer sent elsewhere; App – 50% of orders made via the app; same-day delivery in Calgary and Edmonton
- Attractive balance sheet - large cash position, low debt-to-equity ratio (12%)

Product
- Broad product offering - offers both ends of THC:CBD ratio spectrum
- High quality product - broadly positive reviews online and in industry competitions
- Markey leading testing - caught the Organigram pesticide

5 Forces - Industry (not Aurora specific)
- Threat from new entrants: Threat is low due to high barriers to entry (only 2% of applicants receive a Health Canada license)
- Threat from substitutes: Cannabis is the substitute and therefore the threat
- Bargaining power of suppliers: Nil - major inputs are hydro, water and labour
- Bargaining power of customers: This may become a threat if sales are made through a third party distributor in which case the industry will transition to a wholesale model. Currently the price ceiling is the street price.
- Industry rivalry: prices are largely established; competition centers around quality, supply, variety, etc.

Weaknesses:

- Aurora was slower to market due to delay in receiving a sales license and management's reluctance to acquire and retrofit existing facilities, opting for purpose-built facilities. This has caused Aurora to slow its patient on-boarding due to inventory shortages. Despite this, Aurora has had the fastest rate of patient acquisition in the industry (i.e. they were not slower to market than competitors, just slower to market than they otherwise could have been had they taken an aggressive acquisition approach like Canopy)
- Equity issuance - private placements have resulted in a large share float as bank debt is not yet an option.  However, funds have been used to purchase high quality assets, therefore although ownership dilution has occurred, the bought deals will likely be EPS accretive.
- Inventory shortages as mentioned above

Opportunities:

- Recreational legalization - speaks for itself
- International markets - first mover advantage and proximity to international airports makes this a moonshot opportunity
- Oils - cannabis oils are higher margin due to the fact that they command a higher price per gram of dried bud; in other words, one gram of bud converted to oil has a higher market price than one gram of bud sold as dried bud.  Oils are the healthiest method of consumption and provide the most accurate dosage.
- Aurora's size and cash balance affords it many opportunities to acquire younger competitors in order to consolidate the space and drive up its bargaining power and economies of scale
- Benefits coverage - coverage under employee health benefits and other forms of insurance will provide price and demand support for medical sales
- A subtle benefit of recreational legalization and overall certainty surrounding the space is the full legitimization of the industry which will allow LPs to borrow from the banks.  This will allow LPs to recapitalize their balance sheets by replacing expensive private debt with cheaper bank debt.  This will also provide the option of borrowing in order to re-purchase outstanding shares and shift the debt/equity ratio to a more favourable position once future cash flows are less uncertain.  (Debt financing is inherently cheaper than equity financing. Additionally, interest is tax deductible, making it cheaper still.)
- Cremona facility expansion - speaks for itself

Threats:
- Delay in recreational legalization - any delay will cause volatility in the stock price
- Delay in Aurora Sky construction - speaks for itself
- Share unlock on June 29th - as we saw last year, the lead-up to the unlock can cause hesitation among investors; but as we saw last year, the actual unlocking will likely be anticlimactic as any substantial decline in the price on that day will be met with bids from investors who have been waiting on the sidelines for a "sale"
- Elevated minimum age to purchase cannabis and cannabis products - decreases the customer pool
- Increased regulatory and compliance costs - increases overhead and decreases flexibility
- Restrictions on types of products (i.e. edibles, patches, etc.) - fewer revenue streams and narrower product offering for discerning consumers
- Shift to a wholesale model - this will reduce LPs' final price and margins

Response to two of the points above:

On the delay in full legalization:
- Firstly, in my view, it is not a question of if but when. In the United States, cannabis is treated as a substance with a high likelihood of abuse and no medical benefit - nicotine and alcohol fit those criteria much better than cannabis.  I, perhaps naively, refuse to believe that this irrationality can persist indefinitely.
- Secondly, the Sky facility is modular, which allows management to pause construction at ~300,000 sqft to mitigate unnecessary cash outflow and excess capacity.
- Lastly, even without recreational sales, the projected valuations at Aurora's current price are not that outlandish.  The standalone medical 2019E Enterprise Value/EBITDA multiple is 19.5x based on Wall St / Bay St consensus estimates.  While this is traditionally expensive, it is a reasonable valuation for a growth business in a rapidly growing industry.

On the shift to a wholesale model:
While this would put pressure on margins, the increase in higher margin oil sales as part of the product mix will help to offset this.  I have yet to hear an argument for why a third-party distributor is necessary or even preferable to direct sales but I have included it as a potential outcome.


Some technical ratios to bring this home for the quant guys out there (source: Wall St / Bay St consensus estimates):
2019E Price/EPS: 8x
2019E EV/EBITDA: 6x
2017E Debt/EBITDA: 3x
2017E Interest Coverage: 5x
- These are all very positive metrics from profitability.