With Aurora Cannabis’ (TSX:ACB) newly announced plans to build a 1.2 million sq. ft. greenhouse in Medicine Hat, Alberta, the tally puts ACB’s total production capacity at a eye-popping 430,000 kg annually.
That’s a lot of weed, enough to assert the company’s presence both on the domestic and international stages, says analyst Neil Maruoka of Canaccord Genuity, who in a research note on Wednesday upgraded his rating from “Hold” to “Buy,” with a new target price of $11.00.
On Monday, Aurora announced it had signed a memorandum of understanding with the City of Medicine Hat for the acquisition of 71 acres of land, for the purposes of building a greenhouse. To be named Aurora Sun, the greenhouse facility will cover 21 football fields, larger than the company’s Aurora Sky facility being constructed at the Edmonton International Airport.
“Aurora Sun exemplifies our cultivation and production philosophy focused on purpose-built, high technology, highly automated facilities with industry-leading efficiency, resulting in ultra-low production costs to ensure robust margins in all our markets,” said Terry Booth, CEO, in a press release. “We have significantly differentiated Aurora from our peers by investing in and rapidly building the world’s most advanced model of cannabis production on a mass scale. We believe the Aurora Standard of cannabis production represents the most effectively replicable and scalable system to establish a successful global footprint.”
The new plans come alongside recently announced supply agreements with the SAQ in Quebec and Shoppers Drug across the country, not to mention the company’s international medical marijuana expansion plans which have been aided by its takeover of CanniMed, a licensed producer with a significant pharmaceutical focus.
These developments plus the recent share price depreciation for ACB are enough to warrant a rating change, says Maruoka.
“With the announcement of its intention to build the 1.2 million sq. ft./150,000 kg capacity Aurora Sun facility in Medicine Hat, Alberta, we believe Aurora has positioned itself as a leading global supplier of cannabis,” says the analyst. “A substantial portion of the production from Aurora Sun will be earmarked for international markets, which incrementally de-risks the company’s international strategy, in our view.”
The analyst says ACB trades at 21.1x his two-year forward EBITDA forecast, which comes to his average in Aurora’s peer group of 16.7x and Canopy’s multiple of 23.7x.
The new target price of $11.00 (up from $10.50) represents a 12-month projected return of 30.3 per cent at the time of publication.