Bill Peters, Investors Business Daily

Aurora Cannabis (ACB) on Monday said it had grabbed nearly a third of online recreational sales in Ontario, Canada’s most populous province, offering an early look at which big pot producers are emerging as leaders in a nascent business still marred by shortages.

It was unclear what kind of share the company picked up elsewhere in Canada. Still, in British Columbia, the company said some of its cannabis brands were among the top five sellers. The company said its San Rafael brand, which Aurora picked up through its July acquisition of MedReleaf, was particularly popular in Ontario.

The remarks suggest that the company’s spending on marketing and sales related to recreational legalization — a 99% jump from the prior quarter to $29.4 million — was perhaps paying off.

Ontario’s recreational market currently only allows online cannabis sales. Privately-run physical retail shops will come next year.

Canada Marijuana Shortages To Continue

But as Canada’s stores try to keep their shelves stocked amid a wave of recreational demand, Aurora warned the shortages would likely continue. Management said that even as they try to crank production higher, there wasn’t much they could to immediately address the thinly-stocked shelves at dispensaries.

“Similar to other Canadian LPs, we are facing demand that outstrips supply,” Chief Corporate Officer Cam Battley said during the company’s earnings conference call. “We anticipate this dynamic to continue for some time.”

Many big Canadian pot producers have said they were ready to handle the new recreational market. But after Canada legalized recreational sales on Oct. 17, stores ran out of weed. Aphria CEO Vic Neufeld last month noted that many companies have equipment awaiting government approval.

After those early stumbles, GMP Securities analyst Martin Landry said it had become “increasingly clear that recreational cannabis sales in 2018 will be much lower than previously expected.” A day after Canada’s legalization, Landry, in a research note, said that awareness of the nation’s pot companies, and their cannabis brands, was “extremely low.”

Aurora Cannabis stock is the first of several marijuana stocks set to release quarterly results this week. Rival Canadian producers Tilray (TLRY) and Cronos Group (CRON) report on Tuesday. Canopy Growth (CGC) reports on Wednesday.

Those companies, in their earnings releases and conference calls, are also likely to offer an early sketch of how Canada’s recreational market is progressing.

Aurora Cannabis Earnings

Aurora Cannabis earnings attributable to common shares came in at $105.46 million Canadian dollars vs. C$3.56 million a year earlier. That net profit spike is largely due to non-cash unrealized gains on derivatives and various securities.

Aurora Cannabis over the past year has invested and acquired its way into growth. The company said it expected to complete its integration of MedReleaf by the end of this month.

Revenue rose 260% to C$29.7 million in Canadian currency, or $22 million in U.S. currency. Pro forma revenue, including recent acquisitions, swelled 333% to C$35.8 million.

The company said extract-based products, which have grown more popular, comprised more than 30% of its cannabis-based sales. Management attributed some of that sales growth to a jump in its patient count and greater product availability following the acquisitions of MedReleaf and CanniMed. Active registered patients shot up 250% to 67,484.

Amid concerns that some medical customers might simply become recreational consumers, Aurora said patient visits and demand had increased since Oct. 17. CEO Terry Booth also said that he believed the nation’s recreational business was a “small sliver” of a much bigger pie. The company contends that the real opportunity remained in the global medical market.

Earnings-per-share and sales estimates were unavailable from Zacks Investment Research.

Aurora Cannabis Stock, Marijuana Stocks

“The commencement of adult consumer use sales in Canada has been very successful for Aurora, with strong performance across all product categories and brands,” Booth said in a statement earlier in the day.

After Canada’s big marijuana companies tore through their checkbooks to expand ahead of legalization, analysts seem likely to focus on those companies’ ability to push weed prices higher and costs, production-related and non-production-related, lower.

Average net selling price of dried cannabis rose 15% to $7.32 per gram, while average net selling price of cannabis extracts dropped 26% to $12.12. Still, management said that its general and administrative costs would be elevated as it becomes a bigger, more complicated company.

Aurora Cannabis stock fell 4.5% to 6.96 in the stock market today. Aurora began trading on the New York Stock Exchange on Oct. 23.

Cronos Group (CRON) slid 1.2%. Canopy Growth (CGC) rose 2 cents. Tilray (TLRY) jumped 4.1%. Aphria (APHA) retreated 8.4%.

Big Facility, Smaller Costs?

Aurora has also ramped up some massive production facilities. The company is trying to complete work on its 800,000-square-foot Aurora Sky facility in Canada. The company said it expects that facility to be able churn out more 8,000 kilograms per month by the beginning of next year.

On Monday, Aurora management said that facility could eventually help it push production costs below a dollar per gram.

In the meantime, products that often come with higher prices and margins, like vapes and other concentrates might won’t become available until next year in Canada. Currently, dry buds, joints, tinctures and gel caps are legal in Canada’s recreational shops.

Battley, however, said that legalization of vaping devices and other concentrates could happen in “a matter of months,” ahead of a federal election in Canada next October. He noted that the law says that regulations surrounding those products need to be in place within one year of Oct. 17’s legalization. But he noted that lawmakers didn’t have to wait that long.

“I suspect that we’ll see regulations allowing for at least some of those products and maybe all of those products coming sooner than a year from now,” he said.

Further out, as the U.S. tries to pass an updated farm bill that could legalize industrial hemp, Booth said the hemp market could be bigger then the recreational marijuana market in 20 years.

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