Having a compulsive buying habit like Aurora Cannabis (Aurora Cannabis Stock Quote, Chart TSX:ACB) may make for good headlines but it doesn’t bode well for a company that needs to be getting its ducks in a row ahead of recreational marijuana’s October 17 start date.
So says Bruce Campbell, founder and portfolio manager at StoneCastle Investment Management, who thinks a number of producers will be coming up short on their supply agreements.
CanniMed, MedReleaf, Anandia Laboratories, Pedanios GmbH — Aurora’s grocery list of cannabis acquisitions has been the talk of the sector this year, as the Edmonton-based company aims to overwhelm the competition in all aspects of the nascent industry from plant cultivation and distribution to branded products and R&D. In terms of sheer production numbers, the company says that by the end of 2018 it’ll be growing 150,000 kg of cannabis annually.
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“We’ve got all of our product categories ready,” said chief operating officer Cam Battley on ACB’s earnings call last month. “So, we’re more than ready for consumer legalization. And more than that, our ramp-up in production is happening at exactly the right time. We’re not going to be dumping old, stockpiled, stale product on the market.”
Not convinced on Aurora Cannabis stock
Count Campbell among the unconvinced.
“Aurora’s not one that we’re particularly fond of,” says Campbell, in conversation with BNN Bloomberg. “They continue to operate almost like a hedge fund, continuing to make so many purchases and diversifying into so many areas.”
“This is what I think is going to happen with a lot of [cannabis companies] is that they’re going to run over [budget]. Money has been fairly cheap and easy to come by, so maybe they haven’t necessarily spent it as wisely as they could have,” he says.
Like other companies in the sector, Aurora’s share price has benefitted handsomely from the pot frenzy sparked in mid-August on news that beer and alcohol giant Constellation Brands would be considerably upping its investment in sector-leading Canopy Growth Corp. ACB got a further boost mid-September when a report surfaced that Aurora had been in talks with the Coca-Cola Company on the development of cannabis-infused beverages.
Aurora has substantial crop production coming from its acquisitions, especially MedReleaf, but it also has a number of its own facilities in various stages of construction, including its flagship Aurora Sky facility at the Edmonton International Airport as well as Aurora Sun in Medicine Hat, Aurora Mountain in Mountain View County, Alberta, and Aurora Vie in Pointe-Claire, Quebec.
“I’ve talked to a number of analysts who were at [Aurora Sky] for the analyst day and they were all very impressed with the technology,” says Campbell. “They probably just have a little bit of growing pains to get that all up and get that facility to 100 per cent. Then they still have the [Aurora Sun] facility in southern Alberta that they’ll have to bring up.”
“I spoke to a CEO of one of the companies in the sector and he says he’s talked to a number of the provinces and they’re just panicking because the producers aren’t delivering what they told them they were going to deliver,” Campbell adds. “So, it looks like there’s going to be a real shortage. It’s not unlike what most people expected, and we’ll be talking the opposite in a year or year and a half.”