Aurora Cannabis’ (NASDAQ: ACB) (TSX: ACB) bet on selling prescription cannabis in places like Germany and Australia is returning results, with third-quarter overseas sales more than doubling versus last year.
The Canadian cannabis producer posted record profits and revenue in its latest quarter, driven by surging international medical marijuana sales that now make up most of its business. The results validate CEO Miguel Martin’s strategy of prioritizing pharmaceutical-style markets in Europe and the southern hemisphere over recreational sales, even as some competitors chase both segments.
“These markets, because they’re pharmaceutical products, allow you to import medical cannabis like you would any other medication,” Martin told Green Market Report in an interview on Wednesday.
Aurora’s medical marijuana sales hit C$68.1 million last quarter, up 51% from a year ago. International medical sales grew 112%, now comprising 60% of its global medical cannabis revenue.
The company’s margins paint an even clearer picture. Medical cannabis gross margins reached 74%, up from 63% year-over-year, while recreational cannabis revenue declined to C$9.9 million from C$11.6 million for the period.
That doesn’t mean Aurora is turning its back entirely on recreational cannabis, which it still sells in Canada to gain consumer insights.
Martin also pointed to how Aurora’s Canadian facilities give it competitive advantages in serving international markets, citing low hydroelectric power costs and the country’s decade-plus of federally legal cannabis production.
“Cannabis takes a lot of power, whether it’s to cool it or to heat it or manage humidity or the lighting,” Martin said. “The Canadian power structure is one of the most favorable in the world.”
Unlike Canada’s crowded recreational market, medical markets also have fewer players. “In most of the big European markets, the top five companies will represent two-thirds or three-quarters of the total business,” Martin said.
He included Canopy Growth (TSX: WEED) (Nasdaq: CGC), Tilray (NASDAQ: TLRY) and U.S.-based Curaleaf (CURA: CA) (OTCQX: CURLF) among key competitors in international markets.
The space is also attracting new entrants this year, though. Just last month, High Tide (Nasdaq: HITI) (TSXV: HITI) announced plans to acquire 51% of German pharmaceutical wholesaler Purecan for €4.8 million, joining the flock of North American companies establishing footholds in Europe’s largest medical cannabis market.
In Germany, where Aurora recently launched its first locally cultivated medical cannabis product, patient numbers are growing nine months after restrictions started loosening. Martin said he doesn’t expect upcoming German elections to significantly impact the medical market, saying political discussions have focused more on recreational use.
The fastest growth in Germany is coming from patients who pay out-of-pocket rather than through insurance, though Martin said insurance coverage is expanding as more providers approve cannabis for various conditions.
That pharmaceutical approach could prove valuable if potential federal medical legalization in the U.S. – which Martin noted could precede full legalization – mirrors Europe.
In addition to sitting on C$180.2 million in cash, CFO Simona King told analysts on an earnings call she expects strong medical cannabis margins “to continue to stay favorable in the coming quarters.”
“We’ve worked incredibly hard to have no debt on our cannabis business and have worked incredibly hard to be profitable,” Martin said. “So, as things come up – and yes, we see things from a value standpoint getting more reasonable as time goes along – we have the ability to be opportunistic.”
Aurora’s CEO sees consolidation advantage in global medical markets while recreational takes a backseat to international growth. Read More
