Aurora Sees More Legal Pot Products in a `Matter of Months'

(Bloomberg) -- Aurora Cannabis Inc. said the Canadian government will legalize high-margin concentrates and edible marijuana products in “a matter of months” to beat the next federal election in October, giving the company an opportunity to further boost its recreational pot sales.

Canada legalized recreational cannabis on Oct. 17. For now, that only includes dried flower, capsules and sprays, but the Canadian government said it would expand that to include edibles and concentrates like vape pens within a year. Justin Trudeau’s Liberal government will probably act sooner, before next year’s federal election, said Cam Battley, chief corporate officer at Aurora.

“I suspect we’ll see regulations allowing for at least some of those products and maybe all of those products coming sooner than a year from now,” Battley said on the company’s fiscal first-quarter earnings call Monday. “I think we may be looking at a matter of months.”

Aurora’s products and brands ranked among the top-sellers in many of the provinces it supplied in the first two weeks of legalization, the company said in a statement Monday. In Ontario, Canada’s most populous province, Aurora brands accounted for approximately 30 percent of sales through the government-run Ontario Cannabis Store, while in British Columbia, Aurora had the four best-selling dried flower products.

Rising Prices

The company’s selling prices have averaged over C$5.50 per gram equivalent, the company said. That price may rise along with demand for Aurora’s products, according to Chief Executive Officer Terry Booth.

“The provinces initially wanted everybody to come out flat because they didn’t know who had the champagne and who had the bubbly, and certainly we feel that we have the champagne,” he said. “That demand will lead to higher pricing in the provinces, without a doubt.”

Cannabis shortages have persisted across the country since the early days of legalization. Aurora is in the process of ramping up production from a current annualized run rate of 70,000 kilograms to 150,000 kilograms by the end of the year, but has to keep some supply set aside for its medical patients and international markets.

“Our production team has told me that we could sell every gram we produce up until the end of June into the adult-usage market,” Booth said. “When we have extra supply, which we will, we will allow that for sale in the adult-usage market. But remember, the medical market and the European market fetch us more dough, full stop.”

Edmonton, Alberta-based Aurora posted C$29.7 million ($22 million) in revenue for the fiscal first quarter ended Sept. 30, up from C$8.2 million a year earlier. Although the quarter ended before Canada legalized recreational marijuana last month, the revenue figure included C$600,000 in initial sales to the provinces. Aurora’s shares fell about 1 percent as of 1:30 p.m. in Toronto, paring earlier losses of as much as 7 percent, amid a broader market sell-off.

Net income was C$104.2 million, up from C$3.6 million in the same quarter last year. The gain was primarily attributable to an unrealized non-cash gain on securities. Aurora reported a gross margin on cannabis sales of 70 percent, up from 58 percent a year earlier but down slightly from 74 percent in the previous quarter.

The cash cost to produce a gram of dried cannabis fell to C$1.45 from C$1.87 a year earlier, while the average sale price was C$8.39 a gram, up from C$8.02 the previous quarter. Aurora said it expects its costs to fall as regulations restrict what it can spend on sales and marketing.

Other cannabis companies were mixed Monday, with Cronos Group falling 3.6 percent and Canopy Growth Corp. down 1.4 percent, while Tilray Inc. rose 4.5 percent. Cronos and Tilray will report earnings on Tuesday, followed by Canopy on Wednesday morning.

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