Aurora Cannabis growing storage to prepare for edibles launch next fall

Aurora Cannabis Inc. is building up inventory in anticipation of the legalization of edibles and vaping products next fall, but insists that won't interrupt its sales growth and march to profitability.

Production is expected to grow to 25,000 kilograms in the current quarter ended June 30, but an unspecified portion will be held out of the market, said chief financial officer Glen Ibbott on Wednesday.

"What we're trying to do is learn from the challenges of the industry last year and the initial launch of consumer legalization — we absolutely have to have sufficient inventory to launch these products properly," he told a conference call to discuss the company's third-quarter results.

"So if that means taking a little bit of revenue out of Q4 and putting it into inventory, into new products, then that's what we'll do."

Supply shortages and the slow opening of retail cannabis stores in some parts of Canada have plagued the industry since consumer legalization last October.

Ottawa has indicated edibles containing cannabis and cannabis concentrates would become legal for consumers in October, but the exact timing of product approvals and sales is still unknown.

Edmonton-based Aurora is focused on developing an initial supply of vape pens, edibles and concentrates — the most popular products in U.S. states where they are legal in some states — and will leave beverages for a later time when that market is better known, Cam Battley, chief corporate officer, said in an interview.

Sales up in latest quarter

On the conference call with financial analysts, he said Aurora's growth in medical cannabis sales and patients in the three months ended March 31 showed that fears of softening demand after retail sales were allowed were unfounded.

Aurora nearly doubled production to 15,590 kilograms, with the majority of the volume harvested in the last half of the quarter, as the company's Aurora Sky facility in Edmonton and Bradford facility in Ontario ramped up, taking company-wide capacity to 150,000 kilograms per year.

Revenue from Canadian consumer sales rose 37 per cent to $29.6 million, exceeding medical revenue of $29.1 million, which was up 12 per cent as Aurora's patient count rose five per cent.

The cost per gram of dried product fell to $1.42 from $1.92 but the average net selling price was also down, to $6.40 from $6.80 per gram.

The number one critical success factor is the ability to produce and sell an enormous volume of cannabis.- Cam Battley, Aurora Cannabis CCO

"In this phase of the sector's development, I would say, absolutely, that the number one critical success factor is the ability to produce and sell an enormous volume of cannabis," Battley said. "And we have got that in spades."

Aurora reported a $158-million loss on net revenue of $65 million in the quarter ended March 31, compared with a loss of $238 million on revenue of $54 million in the prior quarter.

Analysts had expected a net loss of $52.6 million on net revenue of $77 million, according to Thomson Reuters Eikon.

Supply-demand balance still 1-2 years away?

Lower than anticipated extract sales drove the miss relative to his revenue estimate of $72 million, said analyst Douglas Miehm of RBC Dominion Securities, although medical sales performed better than forecast.

"We view the results as a mixed bag for Aurora," he said in a note, adding shareholders will like its on-track production growth.

Rival cannabis producer Tilray Inc. CEO Brendan Kennedy said Tuesday he thinks the tight Canadian consumer cannabis market will reach a supply-demand balance in the next 18 to 24 months.

In response to a question, Battley said no one really knows what maximum demand will be, noting there's plenty of room for growth in the Canadian consumer market and there will be growing demand from international markets for products from Canada.