Aurora Cannabis ramping up production but recreational pot shortages to linger

Aurora is aiming to ramp up production from an annualized run rate of 70,000 kilograms to 150,000 kilograms. (Pixabay photo)

TORONTO — Aurora Cannabis saw “strong demand” for recreational pot during the initial few weeks of legalization in Canada and it expects consumer appetite to continue to outstrip supply for “some time.”

The Edmonton-based pot producer was able to meet “just about all” of its supply obligations leading up to and after pot for adult use was legalized on Oct. 17, but it will take time to ramp up its cannabis production in the coming quarters, said Cam Battley, Aurora’s chief corporate officer.

“We’ve heard the discomfort of provinces who across the board have not been able to achieve sufficient supply,” he told a conference call with financial analysts discussing the company’s latest financial results.

“We, we think, have done better than other companies, our peers. We will be ramping up, we will be able to pick up some of the slack soon. But we can’t do that immediately.”

The cannabis producer’s comments came as it reported its results for the three months ended Sept. 30. During the first quarter of its 2019 financial year it delivered revenues of $29.7 million, more than triple the $8.2 million during the same period last year. It also posted a profit of $104.2 million, up from nearly $3.6 million a year ago, boosted by an unrealized non-cash gain on derivatives and marketable securities.

The average net selling price was $9.19 per gram in the quarter, up 12 per cent compared with a year ago, boosted by an increase in cannabis extracts sold.

Analyzing the performance of marijuana companies is difficult because of accounting rules used in the agriculture industry that require companies to put a value on their pot plants before they are harvested, and approaches differ between producers on how to apply these guidelines.

With the legalization of recreational cannabis on Oct. 17 — making Canada the second country in the world after Uruguay to do so — the market for pot has opened up.

The roll-out of adult pot use in Canada has been plagued with problems including product shortages in many markets, as demand has outstripped supply. Some government entities tasked with the sales and distribution of recreational cannabis in various provinces have said they are receiving less product than expected and have warned the shortages could last for months.

Aurora’s results did not encompass recreational cannabis sales post-legalization, but management did provide some initial insights into how the roll-out has gone.

Although not all provinces and territories were providing cannabis sales details, Aurora said the adult use market for the company has been a “success” thus far, with its products ranking among the top selling products and brands in many of the provinces the it committed to supplying.

Aurora brands accounted for roughly 30 per cent of the total market supplied through the Ontario Cannabis Store, while it also had the top four best-selling dried flower products in British Columbia, the company said.

Martin Landry, an analyst with GMP Securities, said it was a larger market share than was expected for the company, particularly in Ontario.

“We were pleasantly surprised by the traction their products are getting in the retail market,” he said.

Alcanna Inc., which operates five Nova Cannabis stores in Alberta and in which Aurora has a 25 per cent stake, saw $3.7 million in sales during the first 19 days, Battley said Monday.

Aurora noted the revenue for its latest quarter included about $600,000 from its initial shipments received by provinces in the final days of September ahead of the legalization.

The company added that during the three months ending Sept. 30 and subsequently the company has made “significant progress towards increasing its production capacity, including receipt of various sales and production licenses.”

For example, in September, it received its production license from Health Canada for its Aurora Eau facility in Lachute, Que., and opened its doors on Nov. 5.

Aurora is aiming to ramp up production from an annualized run rate of 70,000 kilograms to 150,000 kilograms.

The cannabis producer could sell every gram it produces between now and June into the adult use market, said chief executive Terry Booth, citing the assessment of the company’s production team.

“We are tempering it, we are meeting our commitments. And when we have extra supply, which we will… We will allow that for sale in the adult usage market. Remember that the medical market and the European market can fetch us more dough, full stop,” he told analysts.

The company’s focus remains the international medical market, particularly in the EU, Booth said.

“The future is bright for the medical cannabis system and we’re a medical cannabis company globally… This adult usage is just small sliver of a very big piece of pie.”