By David George-Cosh
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 2.25%) 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.