Aurora Cannabis’ (NASDAQ:ACB), (TSX.ACB:ACB) wager on selling prescription marijuana in countries like Germany and Australia has paid off. The third quarter overseas sales have doubled over last year.
Canadian cannabis producers posted record revenue and profits in their latest quarter. This was largely due to the surge of international medical marijuana sales, which now account for most of their business. Results validate Miguel Martin’s strategic decision to focus on pharmaceutical-style markets, in Europe and South America over recreational sales.
Martin explained: Green Market Report In an interview with Wednesday.
Aurora Medical Marijuana sales reached C$68.1 Million last quarter. This is up 51% compared to a year earlier. The international medical sales have grown 112% and now account for 60% of the company’s global revenue from medical cannabis.
Margin numbers are even more revealing. Medical cannabis’ gross margins increased to 74% from 63%, and recreational cannabis revenue decreased to C$9.9 from C$11.6 for the quarter.
Aurora does not abandon the recreational marijuana market in Canada, where it continues to sell cannabis for research purposes.
Martin emphasized that Aurora Canada’s facilities gave it a competitive advantage in international markets. He cited low hydroelectric energy costs as well as the fact that cannabis has been legalized by federal law for more than ten years.
Martin stated that “cannabis requires a great deal of energy, be it to heat or cool the plant or control humidity and lighting.” The Canadian power structure has one of the best in the world.
In contrast to Canada’s overcrowded recreation market, the medical sector has fewer competitors. Martin stated that in most big European markets the five largest companies would represent up to two thirds or even three quarters of total sales.
Canopy Growth, Tilray and Curaleaf are among the key players in international markets.
This year the space has also attracted new players. Just last month, High Tide (Nasdaq: HITI) (TSXV: HITI) announced plans to acquire 51% of German pharmaceutical wholesaler Purecan for €4.8 million, joining the flock of North American companies establishing footholds in Europe’s largest medical cannabis market.
Patients are increasing in Germany nine months after regulations began to relax. Martin says he does not expect the upcoming German election to have a significant impact on the medical cannabis market. He said that political discussion has focused more heavily on recreational marijuana use.
Martin stated that the insurance coverage of cannabis is increasing as more health care providers accept it for different conditions.
That pharmaceutical approach could prove valuable if potential federal medical legalization in the U.S. – which Martin noted could precede full legalization – mirrors Europe.
CFO Simona king told analysts in an earnings conference that she believes the medical marijuana margins will continue to be favorable over the next few quarters.
Martin explained that the company had “worked incredibly to ensure we were profitable and debt-free.” “So, as things come up – and yes, we see things from a value standpoint getting more reasonable as time goes along – we have the ability to be opportunistic.”