Aurora brushes off concerns about supply as revenue triples

The CEO of one of Canada’s largest licensed pot producers is reassuring investors that his company is not “sold out” of product, and will be “more than able” to simultaneously meet demand for recreational weed while also servicing its medicinal and international markets.

“Am I sold out? We wouldn’t sell out. We have budgeted a certain amount of cannabis for distribution every month,” said Terry Booth, CEO of Aurora Cannabis, emphasizing that his firm has been replenishing its orders to all jurisdictions with which it has supply deals.

Booth made the comments after the Edmonton-based producer reported first-quarter earnings Monday, giving investors the first glimpse into how major cannabis companies are performing in the post-legalization era.

Aurora raked in $29.7 million in revenue in the three months ending Sept. 30, approximately $10 million more than in the previous quarter, and a 260-per-cent increase over the same period last year. While most of that revenue came from the sale of medicinal pot, it also earned $600,000 from initial shipments of recreational cannabis to provincial wholesalers carried out in the last two weeks of September.

“We began shipping towards the end of September and recognized a small amount of revenue in Q1 2019. We’ve actually been very pleased about our performance in terms of market share in the provinces, and selling price,” Aurora’s chief financial officer Glen Ibbott said in a conference call.

According to Ibbott, Aurora’s average selling price of a gram of dried cannabis to the recreational market hovered at around $5.50 — he expects that the figure will continue to go down as Aurora’s Sky facility in Edmonton starts ramping up production capacity. “We’ve demonstrated we can provide highquality cannabis, and we have the ability to supply. The price point is an ongoing negotiation with the provinces,” Ibbott said.

Company executives were grilled about their ability to meet the demand for recreational pot, which has overwhelmed provincial suppliers, as well as the few brick-andmortar private retail stores across the country, all of whom have struggled with both delivering product in a timely manner to consumers, and restocking their shelves.

“We’ve heard the discomfort of provinces who, across the board, have not been able to achieve sufficient supply,” said Cam Battley, Aurora’s chief corporate officer. “Our sense is we’re doing well out of the gate, we think we have done better than other companies, our peers, but we will be ramping up, we will be able to pick up some of the slack soon,” he said.

Aurora produced 4,996 kilograms of weed in the three months leading up to Sept. 30, a 395-per-cent hike from the year before. It sold roughly half that amount, a 201-per-cent surge from the same time last year. It has eight facilities with production licences, but only six facilities with sales licences. Aurora Sky, an indoor growing facility in Edmonton, only obtained its sales licence on Oct. 17 — it will only be harvesting at full capacity by the end of this year, according to Battley. Aurora Eau, an indoor growing facility in Lachute, Que., only got its production licence in early September.

Aurora also revealed that it spent almost $30 million on sales and marketing in preparation for the legalization of recreational weed, a number that was 700 per cent more than its marketing budget just a year ago. Ibbott pointed out that that was a “one-time non-recurring expense” that paid off tremendously for the company, considering that the top-selling recreational marijuana brand in Ontario was San Rafael ’71, owned by its recent acquisition, MedReleaf.

It says its brands accounted for “approximately 30 per cent of the total market supplied through the OCS.” Meanwhile, Aurora had the four best-selling dried flower products in British Columbia.

“We noticed strong brand awareness with our products, because of a significant number of marketing campaigns before legalization. But I would expect our marketing costs to go back down next quarter because of the new advertising rules under the Cannabis Act that curtails a lot of our marketing activities,” Ibbott told analysts.

Aurora’s net income for the quarter was $104 million, though BMO analyst Tamy Chen attributed that figure to Aurora’s disposal of part of its investment in The Green Organic Dutchman, for which it received $144 million. “I really don’t think much about their net income. I’m more focused on revenue down to EBITDA,” she said.

We’ve actually been very pleased about our performance in terms of market share in the provinces, and selling price.