Aurora Cannabis buys Australian medical pot firm as losses continue

Aurora Cannabis Inc. has announced a deal to buy the 90 per cent stake they don't already own in medical cannabis company MedReleaf Australia. Threaded cartridges designed for vaping are photographed at the Ontario Cannabis Store in Toronto on Friday, Jan. 3, 2020. THE CANADIAN PRESS/ Tijana Martin

Aurora Cannabis Inc. bolstered its international presence Thursday with a deal to buy the 90 per cent of Australian medical cannabis company MedReleaf Australia it didn't already own.

The deal valued the Australian medical cannabis distribution company, formally known as Indica Industries Pty Ltd., at $50 million (Australian) or about $44 million in Canadian dollars.

Aurora, an Edmonton-based cannabis company, paid $9.45 million (Australian) in cash with the balance in common shares issued.

"(MedReleaf Australia) has done just a superb job building this business and we collectively thought this was the right time to take the next step," Aurora chief executive Miguel Martin said on a Thursday call with analysts.

The deal, which came the same day as Aurora reported a third-quarter net loss of $25.5 million (Canadian), builds on a relationship Aurora has had with MedReleaf Australia since 2017.

The Australian medical cannabis market is clinician-led and uses a traditional pharma-like product distribution model, Aurora said.

Australia's medical cannabis industry has experienced significant growth since 2016 and is now an estimated $400-million market, added Tamy Chen of BMO Capital Markets.

"We believe Aurora shareholders may question the decision to fund most of this (deal) with shares when the company has $200 million cash on hand and a narrowing cash burn," she wrote in a note to investors Thursday evening.

"But management highlighted the importance of having some liquidity buffer to navigate the volatile cannabis industry."

The company has applied learnings from its Canadian business to guide how it operates in Australia and elsewhere.

"Having excellence in Canada, which is such a critical federal legal medical cannabis market, allows you to learn and become adept at navigating other federally legal cannabis markets," Martin said.

"Our leadership that we have in Germany and Poland in other of these key markets comes directly from what we've learned in Canada and we are able to leverage similar products and similar executions because of the world class production in Canada."

Expansion into international markets has been well worth Aurora's time, he added.

"Usually, the top five companies will account for two thirds or three quarters of the overall business in these European markets, whereas in Canada, it might take you 20 or 30 companies," he said.

"So the benefits are there."

Chen agreed international markets are a key growth driver for the company.

"We would have thought that some of these markets would have seen a proliferation of companies by now, similar to Canada (recreatonal markets), but Aurora's stable results and strong margins suggest otherwise," she said.

The deal was announced just as Aurora reported a third-quarter net loss of $25.5 million compared with a net loss of $67.1 million a year earlier.

Those results amounted to a basic loss per share of five cents compared with a loss per share of 20 cents in the same quarter a year ago.

Analysts had expected the company to post a basic loss per share of one cent, according to financial markets data firm Refinitiv.

Aurora said its lower net loss stemmed from a $32.7 million increase in gross profit and a $10.4 million decrease in operating expenses.

Its net loss from continuing operations of $25.2 million compared with a net loss of $62.4 million a year earlier.

Its total net revenue for the period ended Dec. 31 hit $64.4 million compared with $61.1 million a year prior.

"If there's one takeaway for our investors, it would be that strategically and financially we were in the best shape ever," Martin said.

Aurora's medical cannabis net revenue was $45.1 million compared with $38.9 million in the same quarter the year before, while its consumer cannabis net revenue was $11.6 million compared with $14.6 million a year earlier.

The results pushed Aurora's share price up almost four per cent or by two cents to 54 cents in afternoon trading.

This report by The Canadian Press was first published Feb. 8, 2024