Aurora Cannabis Makes a High-Margin Product Move

Aurora Cannabis Inc. (TSX:ACB) invests $10 million in Capcium Inc. in order to produce cannabis-based softgels

SmallCapPower | June 11, 2018: Aurora Cannabis Inc. (TSX:ACB) Thursday announced that it has signed an agreement with Montreal-based softgel manufacturer Capcium Inc. to produce high-quality, cannabis-based softgels for patients. Capcium has emerged as one of the leading manufacturers in the cannabis industry. Production of high-precision dosage controlled softgels is an extensive and complex process. Capcium, through its pharmaceutical and encapsulation experience, has developed expertise that is ready to be applied to the cannabis industry and deliver high-volume production capacity. Softgel capsules are thought to be a precise-dosing, familiar-looking product for prescribing physicians and patients looking for an alternative method for consuming cannabis.

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Additionally, Aurora Cannabis acquired a 19.99% ownership interest in Capcium for $10 million. Capcium intends to use this investment to expand its cannabis softgel manufacturing business, which includes the construction and operation of a large, state-of-the-art facility, to be completed in Q4 2019.

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Aurora Cannabis CEO Terry Booth said, “This investment in Capcium reflects our strategic objective to further expand our differentiated, higher-margin product offerings. Capcium’s extensive know-how has enabled it to develop an advanced technology for the high-volume production of cannabis-based softgels. This provides us with a strong competitive advantage, positioning us well to build a leading position in the production and sale of value-added cannabis products globally. We are proud that Aurora quickly is becoming the partner of choice in the cannabis industry, and we look forward to capitalizing with Capcium on the significant opportunity that softgels represent.”

The companies have also agreed to immediately establish a high-volume, state-of-the-art softgel manufacturing operation in Pointe-Claire, Québec. Softgel sales from this facility are anticipated to commence by the end of summer 2018, which will be subject to Health Canada approval. Capcium will be the exclusive manufacturer of Aurora’s North American cannabis softgel products. The agreement also contemplates Capcium being the company’s preferred global manufacturer of softgel cannabis products. This deal will establish Québec as a world leader for cannabis value-added products by leveraging the experience and expertise of two innovative companies with Québec operations, while creating highly-skilled Québec-based employment in the rapidly-expanding cannabis sector.

In terms of valuation, Aurora Cannabis trades at market capitalization of $5.45 billion with price-to-book multiple of 3.93x.

Disclosure: Neither the author nor his family own shares in the company mentioned above.

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