A license to sell cannabis oils opens up a lot of opportunity for Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News: TSXV:ACB), says Canaccord Genuity analyst Neil Maruoka.
On Monday, Aurora Cannabis announced that its wholly owned subsidiary, Aurora Cannabis Enterprises, had been licensed by Health Canada for the sale of cannabis oils.
“Obtaining our licence to sell cannabis oils is another major milestone for Aurora, and we can now participate in the derivative cannabis market by further expanding our product line for patients and offer prescribing physicians a high-quality alternative to inhaled products,” said CEO Terry Booth “We have made key capital investments that now enable us to rapidly deploy our differentiating extraction methods that rank among the most consistent and efficient in the sector. With the combined capacity from our existing production site, as well as from our planned 800,000-square-foot Aurora Sky facility now under construction at Edmonton International Airport, we believe Aurora is well positioned to become one of the largest producers and distributors of cannabis oil products, which remains a key element of our developing business strategy.”
Maruoka says that while Monday’s news came as no surprise to him, he notes that the economics are worth considering. The price for cannabis oils, he points out, can fetch two or three times the gram-equivalent of dried bud. It’s a development he thinks could drive margin expansion for Aurora.
“Although we have been expecting this news for some time, we view the license to be a positive milestone in the company’s commercialization strategy,” says the analyst. “We believe this license opens the opportunity to sell a higher-priced, higher-margin product that could ultimately grow to represent approximately half of the Canadian cannabis market in the longer term. The receipt of this license follows the production license for oils that the company received in February of last year; as such, we expect that Aurora has been stockpiling product in anticipation of this catalyst.”
In a research update to clients Monday, Maruoka maintained his “Speculative Buy” rating and one-year price target of $3.15 on Aurora Cannabis.
Maruoka believes Aurora will generate EBITDA of $13.1-million on revenue of $32-million in fiscal 2017. He expects these numbers will improve to EBITDA of $80.2-million on a topline of $192-million the following year.