National Post (National Edition)
Aurora Cannabis CEO ‘loses sleep’ over industry supply issues
But output is ramping up at steady pace
Aurora Cannabis Inc. chief executive officer Terry Booth says he “loses sleep” over the industry’s ability to supply the global cannabis market.
“I lose sleep over our ability to supply this global cannabis market,” Booth said late Monday on a call with analysts to discuss the company’s second-quarter earnings.
“It will be at least five years until we have an oversupply situation.”
The Edmonton-based company kicked off a major week in cannabis company earnings with revenue that largely met analysts’ expectations — it generated $54.2 million in revenue in the second quarter ending Dec. 31, 2019, an 83-per-cent increase from the previous quarter.
The results provide the first clear look of Canadian consumer demand for recreational cannabis since it was legalized last October, and the ability of Aurora to meet that demand.
The company sold 6,999 kilograms of dried cannabis to both the recreational and medical markets between Oct. 1 and Dec. 31, a 162-percent increase from sales in the quarter prior to this one.
But more of the company’s revenue still came from sales to the medical market — Aurora generated $25.9 million in revenue from sales to the Canadian and international medical cannabis markets, and $21.6 million from domestic adultuse sales.
On the call, Booth said that he was confident, given the speed of how production is ramping up — particularly in its Aurora Sky indoor facility in Edmonton — that the company would be able to have 25,000 kilograms of dried flower ready for sale by the end of June 2019.
When all its production facilities are licensed and at capacity, Aurora’s estimate for total production is in the range of half a million kilograms of cannabis per year.
Canada has been grappling with a legal cannabis shortage ever since recreational consumption became legal last October. Provinces, many of whom control the distribution and sale of cannabis, say that they are just not getting enough product from licensed producers to meet consumer demand.
Licensed producers, meanwhile, are pointing fingers at the pace of Health Canada’s licensing process, and supply chain bottlenecks not uncommon to a nascent industry.
“We need better retail infrastructure across the country to see the level of sale everyone is anticipating. It will take a couple (of ) more quarters,” said Aurora chief corporate officer Cam Battley, in response to a question from Bank of Montreal analyst Tamy Chen about supply chain obstacles.
The company also attributed a delay in ramping up production to logistical issues that came with moving staff and equipment from its main Aurora Moun- tain facility, also near Edmonton, over to its Aurora Sky facility when the latter obtained a licence to produce on Oct. 17.
“I think the best way to look at the company now, is we will not have any logistical constraints going forward,” Booth said.
Aurora products accounted for approximately 20 per cent of all consumer sales across the country, the company said, basing the figure on available data released by Health Canada for the second quarter of 2019.
The licensed producer also said that its priority in terms of product allocation, was to ensure its Canadian and international medical markets were fully supplied, before focusing on the domestic recreational market.
“We are going to emphasize the product forms where we can generate the highest margins. We are primarily a medical company and we are not going to be dumping all additional production that comes out from Aurora Sky and our Brantford facility to the domestic recreational market,” Battley said.
Aurora generated $2.8 million in revenue from sales of dried cannabis to the EU in the second quarter of fiscal 2019. Hours before its earnings were reported, the company announced it had completed the first commercial export of cannabis oil to the United Kingdom for medical use, under a new legal framework that took effect Nov. 1.
The company attributed a loss in revenue of roughly $3 million due to the absorption of an excise tax slapped by the Canadian government on medical cannabis products, saying that until the government absorbed that tax on medical patients using the drug, Aurora would continue to cover it.
Sincel legalization, Aurora’s stock has lost roughly 35 per cent of its value, as the pre-legalization buoyancy for pot stocks began to subside. Its shares were mostly unchanged in Tuesday trading, closing at $9.47 in Toronto.
WE WILL NOT HAVE ANY LOGISTICAL CONSTRAINTS.