Late last month I fleshed out some thoughts on Aurora Cannabis (NYSE:ACB), ultimately deciding that an investment in Aurora stock was mostly an investment in medical marijuana with an emphasis on Europe.
Source: Aurora Cannabis
It’s a difference that still doesn’t entirely matter. While Canopy Growth (NYSE:CGC) appears to be catering to recreational users while New Age Beverages (NASDAQ:NBEV) is, of course, looking to take an early lead in the CBD-infused beverage space, most of the major names in the business are still acting as a lot of things to a lot of people.
The nascent industry has made the race a very messy and complex one. The proverbial land-grab of smaller names in the business has only made matters messier.
The legalized marijuana movement has matured enough to start making meaningful comparisons of all these companies. There’s yet-another nuance to Aurora Cannabis that keeps Aurora stock at the upper portion of a list of marijuana stocks to buy.
Latin American Marijuana
As yours truly predicted would be the case several times last year and earlier this year, cannabis is becoming a commodity and is increasingly priced as such. Though up recently, marijuana prices are broadly falling as its cultivation scales up, and the business is increasingly focused on low-cost production now that suppliers have to compete on price.
My intuition about where newly-developed crops would be planted has so far been wrong, however. I widely assumed most new growth would actually take shape where it was sold and consumed, but it’s actually been Latin America.
That growth has been largely spurred and sponsored by pharmaceutical companies. Khiron Life Sciences is partnering with a research hospital in Colombia. Canada’s PharmaCielo now owns a piece of Mexico’s Mino Labs that ensures a supply of cannabis oil.
Non-pharmaceutical players are also plugging into the low-cost and low-hurdle supply offered by growers in Latin America as well, however. Tilray (NASDAQ:TLRY), for instance, has acquired Chile’s Alef Biotechnology, which grants the company a valuable production license.
The moves, and others like them, put North American companies into a Latin American cannabis market expected to be worth $12.7 billion by 2028; most of that would be sales of medicinal cannabis.
But, as laws progress and minds are changed, it’s likely that restrictions currently making importing and exporting cannabis incredibly difficult will be eased.
That makes Latin America a marijuana hub that Aurora isn’t a part of. Except, it is.
Aurora Stock and Latin America
The company seems vulnerable on the surface. It’s one of the largest names in the business in terms of production potential, with something on the order of 570,000 kilograms’ worth of annual yield possible now that the MedReleaf deal is done. But, given its acquisition trend, the eventual output of as much as one million kilos per year doesn’t seem outlandish.
Since home-grown production is important to Aurora, the prospect of lower-cost production from Latin America is a concern.
Aurora Cannabis acquired Uruguay-based ICC Labs in November. The deal not only gave Aurora 70% of the Uruguayan recreational market, but it also grants the new owners licenses to grow medical marijuana in Colombia and plugs it into an agreement with Mexico that allows imports of the commodity into that country.
It’s a foothold in a continent that 650,000 people call home and a continent that Europe’s buyers are increasingly turning to in order to source cannabis, for a variety of uses. That’s just another nuance that dovetails into the business Aurora has been developing.
It’s also a collective of countries that have been a little more progressive about cannabis than its neighbor to the north.
What Cam Battley, Chief Corporate Officer for Aurora, meant when he commented, “We see ICC as the jewel of the South American market. This is going to be our anchor in South America and we have very big plans for that continent” still isn’t exactly clear. But, it does suggest more deal-making and more market penetration are on the way.
Looking Ahead for Aurora Stock
It’s still the early innings for the cannabis revolution. The dust is still settling, and a wide array of potential outcomes lie ahead.
It is becoming clear, however, that Aurora Cannabis is emerging as one of the more deliberately and strategically-managed players of the marijuana movement.
It remains focused on Europe and medicinal marijuana but is also establishing roots in a mostly-underserved South American market. Though not neglecting North America, it appears it’s being selective, picking and choosing its battles in what’s become an overwhelmingly competitive Canadian market. The U.S. market is ready to see some overflow too.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
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