Earlier this week Cantor Fitzgerald analysts initiated coverage of Aurora Cannabis (ACB), issuing a “neutral” rating to the stock. Meanwhile, the Canadian company has been announcing moves in the U.S. and Mexico.
Company executives also made headlines this week by mispronouncing one of their flagship brands named after the California town, San Rafael. Whether this was a well-orchestrated publicity stunt, or a genuine faux pas, it illustrates a broader trend taking place within the company.
Aurora cannabis can’t count on the Canadian market alone if it wants to be profitable. Whether due to black market competition or regulatory hurdles, the writing is on the wall in Canada.
ACB already has operations in 25 countries, so this strategy is hardly a new one. However, in recent weeks this approach seems to be gaining traction on the North American continent.
The company’s flagship recreational cannabis brand, San Rafael ’71 is a great example. With a population of approximately 40 million people – essentially the same as Canada’s – California could be the largest cannabis market on earth, so it makes sense that any major cannabis player should have a brand here.
According to Corey Herscu, founder of cannabis-focused public relations company Rnmkr Agency: “Canada is appropriating all things California for the ‘cool’ factor that it brings.
“Cannabis marketers understand, unequivocally, that people buy on positive emotion and nothing says ‘good weed’ like the thought of anything California — It quite literally set the North American standard for quality, regulations, and an adult-use rollout.”
Analysts are hoping for solace in other parts of the U.S. as well. Cantor Fitzgerald analyst Pablo Zuanic noted the strength of the Colorado market, where spending on adult-use cannabis is 12 times that of Canada, and medical per-capita spend is 19 times that of Germany — a market that has 2.2 times the population of Canada.
“Valuations are at two-year lows, and we deem them attractive based on the long-term opportunity,” said Zuanic.
Cannabis south of the U.S. border
Of all the major cannabis companies, ACB is the only one with a foothold already in Mexico. Thanks to the company’s 2018 acquisition of Farmacias Magistrales S.A., they now have access to over 500 hospitals and pharmacies in Mexico.
Farmacias Magistrales S.A. is the sole company in Mexico that’s authorized to import cannabis with more than one percent THC. And while the jury is still out in terms of how soon recreational cannabis will become legal in Mexico, the acquisition could still set up ACB for big things.
The creation of the Mexican Cannabis Institute could be a key part of the legalization of recreational marijuana in Mexico. The institution is expected to be launched by January 1, 2021.
One of the main purposes of the Institute will be to issue licenses in four different categories, such as: production, sales/marketing, processing/extraction, and imports/exports.
If the current guidelines remain in place, and assuming Aurora’s Mexican partner receives at least one recreational license, this could reduce a significant portion of Aurora’s competition in Mexico.
Only having access to one license for a specific segment of the cannabis market is a major limitation – one that could essentially eliminate most U.S. vertically integrated U.S. competitors.
Aurora Cannabis Inc. (ACB) was trading at $3.57 per share on Friday morning, down $0.01 (-0.28%). Year-to-date, ACB has declined %, versus a 15.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Eric Bowler
Eric Bowler is an accomplished journalist providing in-depth insights for more than two decades. Over the past several years his focus has been on the marijuana industry, with a special interest in cannabis growth stocks. His daily coverage of the industry keeps him on top of the key trends with the goal of helping investors make well-informed decisions.