Most interviews with Cam Battley — Aurora Cannabis Inc.’s zealous executive vice-president — inevitably yield considerable enthusiasm about the company’s outlook.
Aurora, among Canada’s largest cannabis producers boasting greenhouses built or under construction in Alberta and Quebec, with more investments abroad, is “poised for explosive growth,” he says.
“It’s just like a golden era for us right now. You couldn’t ask to be in a better place in a growth phase.”
Battley’s enthusiasm isn’t rooted in the same financial metrics that get the blood pumping for most executives of highly valued public companies. In its latest quarterly results, released Tuesday, Aurora posted less than $6 million in revenue with 16,400 customers.
And, yet, the company is valued at more than $1 billion on the stock market.
When pressed on his penchant for flowery language, Battley said, “I know, I get terribly excited about this stuff.”
But he also read out the laundry list of Aurora’s growth to date: a greenhouse north of Calgary; production facilities under construction near Edmonton and outside Montreal; a 19.9-per-cent stake in Australia’s first licensed cannabis company; and the acquisition of a wholesale distributor in Germany, which recently legalized pot for medicinal use.
“That is our anchor in the European Union,” Battley said. “As other countries establish their own medical system, we’re poised to supply additional markets in Europe.”
Despite Battley’s verve, Aurora’s revenues and sales growth fell short of expectations, according to a report by GMP Securities, which noted the number of grams the company sold in its latest quarter grew by just 16 per cent over year-ago levels to 755,000 grams.
“This represents the company’s slowest growth rate since inception and is surprising given that there appears to be plenty of inventory on hand,” GMP analysts said in a note to clients Tuesday.
In an interview, Battley said Aurora is producing “record yields right when we need them.”
He also believes the company’s more than $1-billion valuation is “easily justified,” based on “the rate of growth and scale of opportunity” for a producer that has gone from zero to 20,000 customers in less than two years.
Aurora controlled nearly 13 per cent of Canada’s medical cannabis market at the end of June, based on total grams sold. It also had eight per cent of all customers, though Battley noted patients can get their medicinal marijuana from multiple producers.
Marijuana company valuations are not based on what they make now, but on their future earnings once they roll out production and the pool of customers dramatically expands when recreational sales become legal.
Greg McLeish, an analyst at Mackie Research who published a 70-page report on the marijuana industry last week, said “all of the analysts out there, me included, we’re all going to be wrong” on forecasts of valuations, profit margins and costs.
“This is a brand-new industry; nothing has been ever attempted like this before in the cannabis world.”
McLeish is bullish on Aurora and, like GMP, rates the stock as a buy. He said the company is well capitalized to fund its expansion ambitions, is well-positioned to scoop up additional revenues from international markets and has been attracting customers, with 3,500 new patients since the end of June.
This is a brand-new industry; nothing has been ever attempted like this before in the cannabis world.
Aurora has delayed its path to profitability as it uses cash on hand to expand into new markets and boost production. In his report, McLeish estimates Aurora will be profitable by 2019.
“Investing in the cannabis sector is not for the faint of heart since companies operating in the sector will most likely experience both regulatory and operational challenges,” he wrote.
“While Aurora could experience operational challenges ramping up its new 800,000 (square foot) facility (near Edmonton), its solid balance sheet and focus on the medical, recreational and international markets should result in strong revenue and earnings growth through our forecast periods.”