Aurora Cannabis Inc’s (TSX:ACB) (NYSE:ACB) global investments are poised to make the Company a significant player in the hemp market
John Brooker | June 20, 2019 | SmallCapPower: Aurora Cannabis Inc. (TSX:ACB) (NYSE:ACB) is one of the Canadian cannabis stocks and is the second-largest Canadian cultivator by market cap. ACB is vertically integrated and horizontally diversified across various segments of the cannabis value chain. In an article published on May 24, 2019, we discussed how Aurora Cannabis has a medical cannabis market edge. On June 5, 2019, we went over why Aurora Cannabis Inc’s innovation makes it appealing, and on June 13, 2019, we talked about how Aurora Cannabis Inc’s Global Initiatives Could Make it #1.
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Today, we look at Aurora Cannabis’ leadership in hemp production and the benefit that it should provide the Company in the long run.
What is hemp?
The term “hemp” is used to classify cannabis that contains a THC concentration of 0.3% or less. While the legal definition described above was not legitimized until the Agricultural Act of 2018 had passed, “hemp” has historically been used to describe non-intoxicating cannabis.
Aurora Cannabis’ hemp production is a strong asset to the cannabis market
Hemp-derived CBD is a significant market opportunity. New Frontier Data’s Hemp Business Journal estimates that the hemp-derived CBD market will grow from $3.74B globally in 2018 to $5.73B by 2020. In Canada alone, New Frontier Data’s Hemp Business Journal estimates that the hemp-derived CBD market will grow from a $390M market in 2018, to a $1.9B market by 2022.
Source: New Frontier Data
Regulations on hemp-based CBD are more liberal in Canada, the U.S., and the EU, primarily because hemp-based CBD contains limited THC (>0.3%). As a result, hemp-based CBD products are allowed to be sold in supermarkets and pharmacies, such as Walgreens and Kroger. These products have not had access restricted to dispensaries, and do not require a prescription. The wide availability of hemp-based CBD products has been a key driver of the increased popularity of CBD as a natural health supplement, and growth amongst non-typical cannabis users. With CBD’s popularity as a health supplement increasing and many countries globally adopting more liberal hemp/cannabis regulations, we believe hemp could become a lucrative market for cannabis cultivators, due to low regulation relative to other cannabis products.
Aurora Cannabis has done considerable M&A in the hemp space. The Company’s first deal was in June 2017, when it made an investment in Hempco, a leading processor and marketer of hemp-based products & brands with over 15 years experience. On April 16, 2019, Aurora announced that it plans to acquire all of the issued and outstanding common shares of Hempco not already owned by Aurora for $1.04 per Hempco share.
In July 2018, Aurora Cannabis partnered with Evio Beauty Group Ltd. The agreement between the two companies involves Aurora and Evio collaborating to develop a line of co-branded hemp seed oil cosmetic products as well as a collection of CBD-infused cosmetic products. Establishing a leading brand is going to be essential for cannabis companies to be successful in the long run. This partnership should result in greater brand recognition and cross-selling opportunities to customers of both companies, as Evio has established relationships with more than 50 prime retailers in both Canada and the U.S.
Most recently, in September 2018, Aurora Cannabis bought-out Uruguay-based ICC labs, an LP and distributor of medicinal cannabinoid extracts, recreational cannabis, and industrial hemp products. ICC presently has over 70% market share in Uruguay, the first country in the world to legalize cannabis for adult consumer use. ICC also holds licenses in Colombia to produce medical cannabis. The company has an estimated annual funded production capacity of 450,000 kg of bulk hemp and cannabis. ICC Labs currently has two facilities under development, adding 124,000 sq. ft of greenhouse space in Colombia and a 1,000,000 sq. ft facility in Uruguay.
Additionally, Aurora Cannabis acquired Europe’s largest producer, processor, and supplier of certified organic hemp and hemp products, Agropro UAB, as well as hemp processor and distributor Borela UAB in September 2018. These sister companies have over 170M sq. ft under contract, potentially yielding more than 1,000,000 kg of organic hemp, with additional contracts to expand to more than 320M sq. ft across Europe.
Aurora’s activity, growth, and geographic diversification in hemp-based CBD positions it favourably in a market that has a lot of upside. Aurora’s history of actively investing in proven hemp companies serves as a positive factor that Aurora Cannabis should continue to rapidly expand in the hemp space. In fact, management has recently stated that it plans to allocate a large portion of its cash to investing in expanding its hemp business.
Aurora Cannabis stock currently trades at a market cap of $10.1 Billion.
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