Source: seeking alpha
Aurora Cannabis (ACB) recently announced it was one of three cannabis companies “selected by the German Bundesinstitut für Arzneimittel und Medizinprodukte BfArM (Federal Institute for Drugs and Medical Devices)” to “cultivate and distribute medical cannabis in Germany.”
Just as important was the fact Aurora received the highest ranking out of all 79 concepts that were submitted to the Institute, reaffirming its leading excellence at all levels of the production process in the industry.
Aurora received five of the 13 available lots under the tender, the maximum number allowed. Per terms of the deal, the company will supply at least 4,000 kilograms over a four-year period to the German government, which will then be supplied to wholesale distributors serving German pharmacies. With a population of over 82 million, that will be easily surpassed.
Each lot awarded allows for up to 200 kilograms to be produced annually.
Aurora has been supplying the German market with dried cannabis flower since medical cannabis was legalized in 2017, and recently started delivering cannabis extracts to the German medical market.
In this article, we’ll look at why this is important to Aurora beyond the modest increase in revenue over the next several years.
Implications
There are several important things to consider in regard to being given permission to produce cannabis within Germany, which is expected to be the largest medical cannabis market outside of North America. Working within the nation itself, over time, should produce good relationships with relevant authorities and end-users, which will provide even more opportunities in Germany.
Another key benefit that can’t be underestimated is the mitigation of potential risk associated with protectionist policies, which could reduce revenue and earnings over the long haul if Aurora didn’t have a physical presence in the country. That would be the consequence of Germany reducing or potentially eliminating supply from companies without a domestic production presence.
As demand rises and supply increases, the company has a very predictable revenue stream that has little chance of being defaulted on since its direct customer is the German government. That bodes well when the company is allowed to boost production in the years ahead.
With Aurora already supplying Luxembourg and Italy, among others in the region and around the world, this will only enhance its mind share among countries looking for a supplier that can consistently meet demand. That’s probably the most immediate benefit the company received from being in the deal, along with being the top ranked concept among all submissions.
That means the reputation of the company continues to improve around the world, not only in the 24 markets it already supplies, but those that are looking for a supplier that will be reliable and can be trusted for the long haul.
Conclusion
Aurora Cannabis has positioned itself better than any other cannabis producer in the world at the global level in the minds of customers, in my opinion.
Its outstanding performance in the submission process further validates that reality, and as it continues to ramp up production capacity over the next year or so, more markets are going to look to Aurora as the supplier of first choice.
In the short term, this will be more like icing on the cake for the company, as it already serves the German and a number of surrounding markets. Over the long term, this is a big event for the company because it further cements it as the leader in the global market, which will without a doubt be leveraged to open the doors to other markets.
Everything is coming together nicely for Aurora as it continues to expand its global footprint to meet soaring demand for medical cannabis, while at the same time rapidly boosting its production capacity to align with end-user needs.
The acknowledgement by Germany that Aurora presented the best concept among all the companies, once again, reiterates the fact it has raised its game to a very high level and will continue to be rewarded for it.
As I’ve mentioned in my last several articles concerning Aurora, it should be considered a long-term holding at this time, and those hanging on for a prolonged period of time will enjoy significant return for many years into the future. Any meaningful corrections should be considered opportunities to add to our positions, not a signal to sell.
Disclosure: I am/we are long ACB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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