Canada’s Slow Cannabis Market is Hurting Aurora (ACB) the Most

At the moment, the Canadian cannabis market is maybe not what we thought or not what many hoped. Eight months into legalization, Canadian cannabis is being overshadowed by American companies. Besides companies heading north to list on the CSE, the American market, even with all its messy regulations, is still more appealing.

Even with federal regulations in place, the United States is far less conservative from a consumer perspective. In recreational zones, you will see cannabis being delivered and dense marketing – all the normal trappings of a healthy sector. Canada, although federally legal, is strangling LPs with regulations and lack of modern policy with strict limits on THC contents, health claims, and advertising.

Government data showed that sales have only ticked up slightly since legalization. Sales in March reached $60.5 million indicating an annualized industry of just over $720 million which is substantially lower than initial estimates of $3.6 billion.

One of the companies being hit the hardest by this is Aurora Cannabis ACB. Most would not think that the Canadian LP with the second largest market cap would be at risk of missing out on opportunities. However, this is precisely what Aurora seems to be lacking – avenues for growth outside of Canada in areas with growing recreational consumer populations.

For example, let’s look at Canopy Growth CGC, the company recently inked a deal with Acreage Holdings giving them immediate access to a legal US cannabis market. In addition, the company has a well-defined hemp strategy in the U.S. recently announcing hemp production in seven states and when at full capacity will cover nearly 3,268 football fields.

Unlike Canopy Growth, Aurora is heavily invested in Canada, and, outside of North America, the company is well established in Germany. Yes, Aurora does have operations in 24 countries; however, most of those operations are in burgeoning medical-use only markets, which, like Canada, are full of strict regulations.

From the beginning, Aurora is heavily invested in supply with enormous cultivation facilities like Aurora Sky, and it seems as if this investment is now their Achilles’ heel.

To compound slow recreational sales, Health Canada has now slowed down the launch of consumables like edibles and vaping products for licensed processors like Aurora effectively limiting sales to commence in December. This is doubly bad for Aurora as the company shifted much of its supply toward extract for the expected October launch. Analysts have already downgraded the company’s sales output. Granted, we are only talking about a two-month delay, but the market is going to be flooded. Aurora is going to increase production by 140,000 kilograms, which would require Canadian consumers to increase their use by 900%.

With Peltz helping Aurora, there is no reason to think the company is not eyeing U.S. CBD and cannabis markets or a partnership with a big brand-name like the rumored one with Coca-Cola in September last year. From an innovation standpoint, with Anandia Labs and Whistler Medical’s genetic library in-house, Aurora can grow high-quality cannabis for much less than its peers, but the real question is can it keep up with Canopy and Cronos cash-wise? The company will most likely have to return to capital markets at some point and shareholders have already faced a lot of dilution.