Q3 2024 Aurora Cannabis Inc Earnings Call
Operator: The Bulletproof Executive 2013 https://www.youtube.com/action-awarded-videos.html Greetings and welcome to the Aurora Cannabis Third Quarter 2024 Results Conference Call. All participants will be in a listen-only mode, and a question-and-answer session will follow the formal presentation.
Greetings and welcome to the Aurora cannabis third quarter 'twenty 'twenty four results conference call all participants will be in a listen only mode and a question and answer session will follow the formal presentation. This conference call is being recorded today Thursday February 8th.
Operator: This conference call is being recorded today, Thursday, February 8, 2024. I would now like to turn the conference over to your host, Anant Krishna, Vice President, Corporate Development and Strategy. Please go ahead.
'twenty 'twenty four I would now like to turn the conference over to your host announced Krishna <unk>, Vice President corporate development and strategy. Please go ahead.
Thank you operator, Hello, everyone and thank you for joining us today.
Anant Krishna: Thank you, Operator. Hello, everyone, and thank you for joining us today. On the line with me are Miguel Martin, CEO, and Glenn Ibbitt, CFO. This morning, Aurora issued a news release announcing our fiscal 2024 third quarter financial results and a separate news release announcing the acquisition of MedRelief Australia. These separate news releases and our Fiscal Q3 2024 financial statements and MD&A are available on our IR website and can also be accessed via CDAR Plus and EDGAR. In addition, you will find a supplemental information deck on our IR website. Listeners are reminded that certain matters on today's conference call could constitute forward-looking statements that are subject to risks and uncertainties related to our future financial or business performance. The actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. These documents may be accessed via CDAR Plus and EDGAR.
On the line with me are Miguel Martin CEO, and Glenn David CFO.
This morning, Aurora issued a news release announcing our fiscal 2024 third quarter financial results and a separate news release announcing the acquisition of Matt really Australia day.
Separate news releases and our fiscal Q3 2020 for financial statements and MD&A are available on our IR website and can also be accessed via SEDAR and Edgar and.
In addition, you will find the supplemental information deck on our IR website.
Listeners are reminded that certain matters on today's conference call could constitute forward looking statements that are subject to risks and uncertainties related to our future financial or business performance actual results could differ materially from those anticipated in these forward looking statements. The risk factors that may affect actual results are detailed in our annual information form and <unk>.
Other periodic filings and registration statements.
These documents may similarly be accessed via SEDAR, plus and Edgar.
Anant Krishna: Following prepared remarks by Miguel and Glenn, we will conduct a question and answer session with our covering analysts. With that, I will turn the call over now to Miguel. Please go ahead.
Following prepared remarks by Magellan, Glenn we will conduct a question and answer session with our covering analysts.
That I will turn the call over now to me. Please go ahead.
Miguel Martin: Thank you, Nance. Our quarterly performance demonstrated not only the strength of Aurora's business model built primarily upon global leadership and high-margin medical cannabis but also our financial discipline. Our highlights include, first, strong revenue of over $64 million dollars, a few percentage points inclusive of 41% growth in our international medical cannabis segment. Second, an industry-leading adjusted gross margin of 50 percent, also up from the Uruguay period. Third, a record adjusted EBIDTA, representing our fifth consecutive quarter of positive adjusted EBIDTA.
Thank you.
Our quarterly performance demonstrated not only the strength of <unk> business model built primarily upon global leadership in high margin medical cannabis, but also our financial discipline.
Our highlights include first strong revenue of over $64 million of several percentage points inclusive of 41% growth in our international medical cannabis segment.
Second industry, leading adjusted gross margin of 50% also up from the year ago period.
Third our record adjusted EBITDA, representing our fifth consecutive quarter of positive adjusted EBITDA.
Miguel Martin: Fourth, recall that we also have one of the strongest balance sheets above any Canadian LP, and our global cannabis business will be debt-free later this month. All of these items move us closer to our goal of generating positive free cash flow in calendar 2024. But before delving into Q3 in greater detail, I first want to review our announcement today regarding the acquisition of the remaining 90% equity interest in MedRelief Australia that Aurora does not currently own. They are a leading distributor of medical cannabis products in Australia. The company was acquired at a total enterprise value of $44 million Canadian dollars, of which $8.3 million Canadian dollars was paid in cash, and the remainder was satisfied by the issuance of Aurora shares.
Four recall that we are also one of the strongest balance sheets above any Canadian L. P and a global cannabis business will be debt free later this month.
All of these items move us closer towards our goal of generating positive free cash flow in calendar 2024.
But before delving into Q3 into greater detail I first wanted to review our announcement today regarding the acquisition of the remaining 90% equity interest in Med relief, Australia that award is not currently on.
All a leading distributor of medical cannabis products in Australia.
The company was acquired at a total enterprise value of 44 million Canadian dollars of which $8 3 million Canadian dollars was paid in cash and the remainder satisfied by the issuance of Aurora shares.
Miguel Martin: This transaction was thoughtfully structured to preserve the strength of Aurora's balance sheet and represents a strategic milestone in Aurora's global cannabis leadership as we have now become the largest platform in the nationally legal cannabis industry in the world. Requiring MedRelief Australia positions us to deliver double-digit increases to the profitability of our Australian business model through higher revenue contributions and higher gross margins. It further aligns its business with other key profitable international markets, most notably Germany, Poland, and the UK.
This transaction was thoughtfully structured to preserve the strength of <unk> balance sheet and represents a strategic milestone and Aurora as global canvas leadership as we have now become the largest platform nationally legal cannabis industry in the world.
Acquired Med relief, Australia positions us to deliver double digit increases to the profitability of our Australian business model through higher revenue contributions and higher gross margins.
It further aligns this business or are there other key profitable international markets, most notably, Germany, Poland and the U K.
Miguel Martin: It is immediately accretive to our adjusted EBITDA and accelerates our path to positive free cash flow generation before the end of the calendar year. We first partnered with MedRelief Australia back in 2017, and since that time, we've been an active contributor to its growth by leveraging our pharmaceutical-grade cultivation and science-driven approach to product innovation. Like Germany, the Australian market is characterized by a clinician-led traditional pharma-like product distribution model that closely aligns with Aurora's operational success. The high regulatory standards of the Therapeutic Goods Authority make Australia a challenging market for new entrants, while providing an advantage to companies like Aurora who are able to meet them. MedRelief Australia already holds the number two position in medical cannabis in Australia, having already invested in clinician education while leveraging Aurora's comprehensive product portfolio to provide best-in-class medicine and support for this rapidly growing patient base. We are extremely excited about our opportunity within the rapidly growing 400 million Australian dollar market. This would make it the largest medical market in the world outside of North America. We welcome MedRelief Australia fully into the Aurora fold and know that we'll be able to do great things together.
It is immediately accretive to our adjusted EBITDA and accelerates our path to positive free cash flow generation before the end of the calendar year.
First partnered with Med relief, Australia back in 2017, and since that time, we've been an active contributor to its growth by leveraging our pharmaceutical grade cultivation and science driven approach to product innovation.
Like Germany, the Australia market is characterized by clinician led traditional pharma like product distribution model that closely aligns with the war is operational success.
The high regulatory standards of the therapeutic goods authority makes us derailleur of challenging market for new entrants, while providing an advantage to companies like Aurora, we're able to meet them.
But really by Australia already holds the number two position in medical cannabis in Australia.
We already invested and clinician education, while leveraging <unk> comprehensive product portfolio to provide best in class medicine and support for this rapidly growing patient base.
We are extremely excited about our opportunity within the rapidly growing 400 million Australian dollar market. This.
This would make it the largest medical market in the world outside of North America.
We welcome <unk>, Australia fully into the Aurora fold and know that we'll be able to do great things together.
Now, let's look more deeply into our business in.
Miguel Martin: Now let's look more deeply into our business. In Canada, we maintained our number one position in the medical market and continue to grow our market share through our broad and attractive product assortment, positive sales mix, and, most importantly, product innovation. Amid a continuous disruption in this market, we know that our commitment to launching a steady stream of exciting new products is critical to holding and growing our domestic medical share. Our next generation cultivars can, and often are, made available across Europe and Australia, providing patients with some of the highest potency and most appealing offerings in these international markets.
In Canada, we maintained our number one position in the medical market and continue to grow our market share through our broad and attractive product assortment positive sales mix and most importantly product innovation.
Amid a continuous disruption in this market, we know that our commitment to launching a steady stream of exciting new products is critical to holding and growing our domestic medical sure.
Our next generation cultivars can and often are made available across Europe, and Australia, providing patients with some of the highest potency and most appealing offerings in these international markets.
Of course, our ability to offer pharma grade products to global patients is only made possible by our competitive advantage of having built a production network of indoor EU GMP certified facilities that are managed by teams who have deep experience in pharmaceutical production.
Miguel Martin: Of course, our ability to offer pharma-grade products to global patients is only made possible by our competitive advantage of having built a production network of indoor EU GMP-certified facilities that are managed by teams who have deep experience in pharmaceutical production. As we have already discussed Australia earlier, let's now delve into our European operations, as we generated sales in a record seven European countries. Germany, Poland, the UK, France, Switzerland, Malta, and the Czech Republic.
As we already discussed Australia earlier was now delve into our European operations as we generated sales and a record seven European countries, Germany, Poland, The U K, France, Switzerland, Malta, and the Czech Republic.
Miguel Martin: In Germany, our largest European market, where we've been operating since 2017, we are one of only three companies with a domestic production facility. We have the second-largest market share for flowers, according to the latest data, and the number one market share for self-payer. We also have three of the top ten cultivars in the country by volume.
In Germany, our largest European market, where we've been operating since 2017, we were one of only three companies with the domestic production facility.
We have the number two market share for flowers. According to the latest data and the number one market share for self payers. We also had three of the top 10 cultivars in the country by volume sales.
We are supportive of the legislative process is moving towards the D scheduling of medical cannabis and the potential wider legalization of adult use cannabis.
Miguel Martin: We are supportive of the legislative process that is moving towards the descheduling of medical cannabis and the potential wider legalization of adult-use cannabis. We are very supportive of this effort and uniquely well-positioned to benefit as the number one supplier of flour to patients outside of public insurance. In Poland, our second largest European market, Aurora earned the number two cultivar and the number two market position by volume.
We are very supportive of this effort and uniquely well positioned to benefit as the number one supplier of flower to patients outside of the public insurance system.
In Poland, our second largest European market Aurora earned the number two cultivar and the number two market position by volume.
Miguel Martin: We are excited about the opportunities that this growing market presents. In the U.K., patients are responding favorably to the launches of our next generation cultivars, which has led to a significant increase in sales in Q3 compared to Q2. In Switzerland, we are building on a successful launch in Q2, becoming a trusted favorite for patients, and are currently widening distribution channels in the country.
We are excited about the opportunities in this growing market presents.
In the U K patients are responding favorably to the launches of our next generation cultivars, which has led to significant increase in sales in Q3 compared to Q2.
In Switzerland, we are building on a successful launch in Q2, becoming the trusted favorite for patients and are currently widening distribution channels in the country.
Miguel Martin: All in all, medical cannabis' adjusted gross margin remains strong at 62%, as we benefit from sustainable cost reductions and improved efficiency in production. Turning back to Canada, our decision to strategically allocate product to higher-margin medical markets resulted in a modest and expected year-over-year revenue decline in the consumer cannabis market. Still, our adjusted gross margin improved substantially versus the year-ago period because of higher efficiency in production operations and a more favorable product. Finally, we exhibited the inherent benefits of a diversified model as we are expanding our reach in the controlled environment agricultural industry through BIBA.
All in all medical cannabis adjusted gross margin remained strong at 62% as we benefit from sustainable cost reductions and improved efficiency and production operations.
Turning back to Canada, our decision to strategically allocate product to higher margin medical markets resulted in a modest and expected year over year revenue decline in the consumer cannabis business still.
Our adjusted gross margin improved substantially versus the year ago period, because of our higher efficiency and production operations and a more favorable product mix.
Finally, we exhibited the inherent benefits of a diversified model because we are expanding our reach in the controlled environment agriculture industry through veeva.
Miguel Martin: Their team is currently leveraging our cannabis facilities to move into the profitable cultivated orchids market, while their current vegetable and plant propagation business already generates a steady, predictable financial performance, albeit on a seasonal cadence. In the upcoming two to three years, we think that our shareholders will benefit from the value creation coming from this segment as we expect the acceleration of Bevo's business plan to continue to drive revenue and EBITDA growth. All of our strategic progress over the past few years will move us towards our goal of positive free cash flow in calendar 2020. With that, I would now like to turn the call over to Glenn for a detailed financial update. Thank you, Miguel, and good morning, everyone. Q3 is representative of our success in executing our business transformation and the tangible and positive results it has brought to our company. Our cash balance was over $200 million as of quarter close, and later this month, we will repay the remaining convertible senior notes with cash for approximately $7.3 million Canadian dollars.
Their team is currently leveraging our canvas facilities to move into the profitable cultivated orchids market.
Their current vegetable and plant propagation business already generates a steady predictable financial performance, albeit on a seasonal cadence.
In the upcoming two to three years, we think that our shareholders are benefiting the value creation coming from this segment as we expected acceleration in vivo business plan to continue to drive revenue and EBITDA growth.
All of our strategic progress over the past few years will move us towards our goal of positive free cash flow in calendar 2024.
I would now like to turn the call over to Glenn for a detailed financial overview.
Thank you Miguel and good morning, everyone Q.
Q3 is representative of our success in executing our business transformation and the tangible and positive results. It has brought to our company.
Our cash balance was over $200 million as of quarter close and later this month, we will repay the remaining convertible senior notes with cash production only $7 3 million Canadian dollars.
Glenn Ibbitt: And that completes the repayment of nearly $540 million of debt over the last three years. And we'll leave our cannabis business debt-free. Now, looking to the big picture, we delivered revenue growth of 5.5% over the comparable year-ago period, including a significant increase in sales from our high-margin global medical cannabis segment. On profitability, Consolidated Adjusted Gross Margin was close to 50%.
And that completes the repayment of nearly $540 million of debt over the last three years and will leave our cannabis business that tree.
I'm looking to Q3 Big picture, we delivered revenue growth of five 5% over the comparable year ago period, including a significant increase in sales from our high margin Global Medical Canada segment.
Unprofitability consolidated adjusted gross margin rose to 50%.
Glenn Ibbitt: An adjusted EBITDA rose to a record $4.3 million, reflecting a $1.4 million improvement from last year and our highest quarterly results for adjusted EBITDA. Q3 also marked our fifth consecutive quarter of positive adjusted EBITDA. Now, let's go into greater depth on our research. In Q3, net revenue rose to $64.4 million, up $3.3 million from $61.1 million in the year-ago period.
And adjusted EBITDA rose to a record $4 3 million.
<unk> and a $1 $4 million improvement from last year, and our highest quarterly result for adjusted EBITDA at.
Q3 also marked our fifth consecutive quarter of positive adjusted EBITDA.
Now, let's go into greater depth on our results in Q3 net revenue rose to $64 4 million up $3 3 million from $61 1 million in the year ago period.
Glenn Ibbitt: Overall, medical cannabis generated $45.1 million of net revenue, up $6.2 million compared to last year. By segment, international medical revenue was $19.3 million, up 41% from last year. And Canadian medical cannabis was $25.8 million, up 2.3% year over year. Our performance in our medical channels was largely due to the positive market reaction to our Canadian-grown, high-potency cultivars in key European markets and to the continued rapid growth of the Australian medical market. Adjusted gross margin for medical cannabis was 62% in Q3, down 1% versus the year-ago period.
Overall medical cannabis generated $45 1 million of net revenue up $6 $2 million compared to last year.
By segment International Medical revenue was $19 3 million up 41% from last year and Canadian medical cannabis was $25 8 million up two 3% year over year.
Yes.
Our performance in our medical channels was largely due to the positive market reaction to our Canadian grown high potency cultivars in key European markets.
Two the continued rapid growth of the Australian medical market.
Adjusted gross margin for medical cannabis was 62% in Q3 down 1% versus the year ago period. The consistently high margin is the result of sustainable cost reductions and improved efficiency in our production operations with.
Glenn Ibbitt: The consistently high margin is the result of sustainable cost reductions and improved efficiency in our production operators, as well as with our shift to supplying Europe from Canada, as the impact of closing our Nordic production facility begins to flow through our finances. As usual, driven by our focus and leadership in the global medical market, medical cannabis represented about 90% of our total cannabis-adjusted gross profit dollars and increased 15% to $28 million in Q3 compared to $24.4 million in the year-ago period. Consumer cannabis net revenue is $11.6 million, down from $14.6 million a year ago.
With our shift to supply in Europe from Canada as.
As the impact of closing our Nordic production facility begins to flow through our financials.
As usual driven by our focus and leadership in global medical markets Medical cannabis represented about 90% of our total cannabis adjusted gross profit dollars increased 15% to $28 million in Q3 compared to $24 4 million in the year ago period.
Consumer cannabis net revenue was $11 6 million down from $14 6 million a year ago.
Glenn Ibbitt: The change was the expected result of our decision to reallocate product to the higher margin market. Adjusted gross margin for consumer cannabis was 26% compared to 20% in the prior year period. This significant increase in margins is coming from higher cultivar yields and continued efficiency improvements in production that are driving lower unit costs. For plant propagation, revenue of $7.3 million grew 10% from $6.6 million in the year-ago period. You'll recall that the seasonality of this business delivers higher revenue in the late winter and spring months, which should result in about 65 to 75 percent of revenue and up to 80 percent of EBITDA in the first half of the calendar year. For our fiscal Q4 and Q1 period, plant propagation adjusted gross margins were 18%, up from 15% in the year-ago period. The increase was due to product mix between vegetable and ornamental plant sales.
The change was the expected result of our decision to reallocate product to the higher margin markets adjusted gross margin per consumer cannabis was 26% compared to 20% in the prior year period.
This significant increase in margins.
He is coming from higher cultivar cultivar yields and continued efficiency improvements in production that are driving lower unit costs.
In plant propagation revenue of $7 $3 million grew 10% from $6 6 million in the year ago period.
You'll recall that the seasonal seasonality of this business delivers higher revenue in the late winter and spring months, which should result in about 65% to 75% of revenue and up to 80% of EBITDA in the first half of a calendar year. So our fiscal Q4 and Q1 periods.
Plant propagation adjusted gross margins were 18% up from 15% in the year ago period. The increase was due to product mix between vegetable and ornamental client sales.
Glenn Ibbitt: Our consolidated adjusted SG&A was well controlled at approximately $27.5 million and continues to reflect our ongoing commitment to keeping SG&A below $30 million in the current business. Turning now to cash flow, we made significant progress in Q3 towards our goal of positive free cash flow in calendar year 2024 and remain firmly on track to achieve that goal as our operations used only $5.3 million a quarter, inclusive of work and capital investment. This is down sequentially from $30.9 million and considerably down from the $60.6 million used in the year-ago period.
Our consolidated adjusted SG&A was well controlled at approximately $27 $5 million and continues to reflect our ongoing commitment to keeping SG&A below $30 million.
In the current business.
Turning now to cash flow, we made significant progress in Q3 towards our goal of positive free cash flow in calendar year 2024 and.
And remain firmly on track to achieve our call is our operations used only $5 $3 million in the quarter inclusive of working capital investment.
This is down sequentially from $30 $9 million in considerably down from the $60 6 million used in the year ago period.
As planned our target of $40 million in annualized expense reduction is being realized mainly in Q3 and Q4.
Glenn Ibbitt: As planned, our target of $40 million in annualized expense reductions is being realized mainly in Q3 and Q4. This is driven by the continued operational efficiency initiatives, including the shutdown of our Nordic production site and the sale of our Dutch assets, with the remaining expense reductions flowing through in Q4. As we manage working capital during the company's shift forward into growth opportunities, we have been successful in balancing the working capital needs of both investing in growth and executing disciplined financial management. For CapEx, we invested approximately $2.8 million this quarter, split evenly between maintenance and growth initiatives.
This is driven by the continued operational efficiency initiatives, including the shutdown of our Nordic production site and the sale of our Dutch assets with the remaining expense reductions flowing through in Q4.
As we manage working capital during the company's shift forward into growth opportunities. We have been successful in balancing the working capital needs of both investing in growth and executing disciplined financial management.
For Capex, we invested approximately $2 $8 million this quarter split evenly between maintenance and growth initiatives.
Now looking forward to our next quarter fiscal Q4 2024.
Canadian medical and consumer segments are expected to be steady quarter over quarter, while Europe, and Australia and both provide growth in their regions.
Glenn Ibbitt: Now looking forward to our next quarter, fiscal Q4 2024. Canadian medical and consumer segments are expected to be steady quarter-over-quarter, while Europe and Australia should both provide growth in their regions. The acquisition of MedRelief Australia should provide both incremental revenue for each gram of cannabis sold and deliver a commensurate improvement in gross margins in that region. By Q1 of our next fiscal year, we expect all three of our global medical regions, Canada, Europe, and Australia, to be delivering adjusted gross margins that exceed our target of 60%. For plant propagation, we expect to see seasonally higher rev views than gross profit. That would be in line with historical performance and the comparable prior year period.
The acquisition of Med relief, Australia should provide both incremental revenue for each grandma channels, so on and deliver the commensurate improvement in gross margins in that region.
By Q1 of our next fiscal year, we expect all three of our global medical regions, Canada, Europe and Australia.
To be delivering adjusted gross margins that exceed our target of 60%.
We're plant propagation, we expect to see seasonally higher revenues and gross profit that would be in line with historical performance in the comparable prior year period.
So revenue growth combined with ongoing cost control are expected to result in continued positive adjusted EBITDA in Q4 2024.
To wrap up our strengthened financial condition is due entirely to the commitment to operational excellence and strategic focus of our team. We are positioning our diversified global cannabis business to deliver dependable revenue growth over the long term.
Glenn Ibbitt: So revenue growth combined with ongoing cost control is expected to result in continued positive adjusted EBITDA in Q4 2024. To wrap up, our strengthened financial condition is due entirely to the commitment to operational excellence and strategic focus of our team. We are positioning our diversified global cannabis business to deliver dependable revenue growth over the long term. Thanks very much for your interest. I'll now turn the call back to Miguel.
Thanks, very much for your interest I'll now turn the call back to Cingal.
Thanks, Glenn if there is one takeaway for our investors it would be that strategically and financially we are in the best shape ever.
Thanks to our team accomplished really consciously accomplishing what we set out for them to do well.
We fully intend to make good on our commitments for topline growth and continued and sustainable adjusted EBIT generation.
$200 million of cash on hand, we're in a strong position as we work towards our goal of generating positive free cash flow this calendar year.
Miguel Martin: Thanks, Glenn. If there's one takeaway for our investors, it would be that, strategically and financially, we were in the best shape ever. This is all thanks to our team accomplishing what we set out for them to do. We fully intend to make good on our commitments for top-line growth and continued and sustainable adjusted earnings for even a generation. With $200 million in cash on hand, we're in a strong position as we work towards our goal of generating positive cash flow this calendar year. Operator, please open the lines for questions. Thank you.
Operator, please open the lines for questions.
Thank you we will now be conducting a question and answer session.
We'd like to ask a question. Please press star one on your telephone keypad.
<unk> tone will indicate your line is in the question queue. You May press star two if she would like to remove your question from Ritu for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star teams.
Today's participants will be permitted one question and one follow up question after which analyst would need to re queue.
Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, while we poll for questions.
Our first question comes from Federico Gomez from APB capital markets. Please proceed.
Hi, Good morning, Thank you for taking my questions.
My first question is on your acquisition in Australia, and you mentioned, it's a market worth about $400 million Australian dollars.
Operator: Today, participants will be permitted one question and one follow-up question, after which analysts will need to requeue. One moment, please, while we poll for questions. Our first question comes from Frederico Gomez from ATB Capital Markets. Please proceed. Good morning.
And that its rapidly growing so can you just give us an idea of how fast that that market is growing what are the drivers there behind that growth.
As well as what sort of assets you have in place there with that acquisition.
And the opportunity Australia represents thank you.
You got it well good morning, Fred Yes, listen we are incredibly excited about this acquisition as I said in my comments. This is a business that we've been partnered with since 2017.
Frederico Gomez: Thank you for taking my questions. My first question is on your acquisition in Australia. You mentioned it's a market worth about $400 million Australian dollars and that it's rapidly growing. So can you just give us an idea of how fast that market is growing? What are the drivers there behind that growth, as well as what sort of assets you have in place there with that acquisition and the opportunity Australia represents? Thank you. You got it. Well, good morning, Fred.
We owned 10% of it great.
Great operators ask pharmacist wonderful piece of business. There, so first and foremost the $400 million a year of Australian revenue market sizing is coming from a report published by the Pennington Institute and they really leveraged the number of units sold represented by.
Reported by the PGA, which is the key regulatory unit and then we multiply that by an average selling price per unit.
Miguel Martin: Yeah, listen, we are incredibly excited about this acquisition. You know, as I said in my comments, this is a business that we've been partnered with since 2017. We own 10% of it. Great operators, ex-pharmacists, a wonderful piece of business there. So first and foremost, the $400 million a year of Australian revenue market sizing is coming from a report published by the Pennington Institute, and they really leveraged the number of units sold represented by, reported by the TGA, which is the key regulatory unit, and then they multiplied that by an average selling price per unit. So, listen, it's not Nielsen or IRI, but, you know, that's the key piece of it.
No it wasn't.
It's not Nielsen or IRI, but that's the key piece of it the PGA is the primary regulatory body.
In Australia, and they are the ones, who published the units sold on a six months basis. So just in terms of growth. If you look back to 2022. The market size was estimated to be at about $234 million Australian and that grew.
In the first six months and we've seen steady growth.
<unk> approvals.
As a key indicator on prescriptions also continues to grow in the first half of 2023, we saw close to 320000, new approvals and this represents a significant increase since July of 2016.
Miguel Martin: The TGA is the primary regulatory body in Australia, and they're the ones who published the units sold on a six-month basis. So just in terms of growth, if you look back to 2022, the market size was estimated to be about 234 million Australians, and that, you know, grew. In the first six months that we've seen steady growth, the number of approvals, which is a key indicator of prescriptions, also continues to grow. In the first half of 2023, we saw close to 320,000 new approvals, and this represents, you know, a significant increase since July of, you know, 2016. You know, when you compare that to, say, Canada, where we've seen some improvement, it's significant growth. So that's that piece.
And when you compare that to say Canada.
Where we've seen some improvement as a significant growth so that's that piece.
The company that we're buying is number two in the market.
And that market data comes from a different data source, which is called <unk> data, which is Australia's leading pharmacy data partner.
It is important to know that it's a representative sample and not all pharmacies are signed up for it but we've had great success in this market.
Multiple brands and really excited about it and as I mentioned, the TJ has done a wonderful job being regulatory forward in science space and so we think this is a market that clearly advantages regulatory forward.
PGA approved.
<unk> suppliers of which we are and so we're thrilled about.
Having a foothold and having such a great acquisition that will be margin accretive.
Day, one in that key market.
Thank you for that.
Color.
My second question here, just about Germany.
They're expected to happen soon.
I'm just curious how do you think that that deal with that if it passes how do you think that getting back to the medical market and your opportunities there in Germany. Thank you.
Miguel Martin: The company that we're buying is number two in the market, and that market data comes from a different data source, which is called NostraData, which is Australia's leading pharmacy data partner. It is important to know that it's a representative sample, and not all pharmacies are signed up for it.
Yes, I appreciate that so Germany is obviously.
A key market for us as you know as I said, we're one of three companies that have domestic production, which is a significant advantage. We're hopeful that we're going to hear something.
Miguel Martin: But, you know, we've had great success in this market with multiple brands, and, you know, we're really excited about it. And as I mentioned, the TGA has done a wonderful job being regulatory forward and science-based. And so, you know, we think this is a market that clearly advantages regulatory forward. TGA-approved suppliers, of which we are, and so, you know, we're thrilled about having a foothold and having such a great acquisition that will be large and accretive day one in that key market. Thank you for that caller.
In late spring, particularly around the D scheduling or the removal of candidates within our Kotick designation.
That in itself will have a massive impact to that market because it will allow both the pharmacists that prescribe it as well as the patients have greater access to that product now the actual timing and how this is going to manifest itself will have to see in the regulations. We are very supportive though.
These actions and have found that the German regulators.
Other it's been the approval process the testing process.
Miguel Martin: My second question here is just about Germany. You know, we have the vote there expected to happen soon. I'm just curious, how do you think that bill, if it passes, how do you think that could impact the medical market and the opportunities there in Germany? Thank you.
The certification process have all done a really good job with us and these things take time, but we think that that legislation is going to have a really significant impact.
For those companies like us that participate in the medical portion.
And obviously, we will have a tagalong impact as we see other markets around them, such as Poland and Czech Republic.
Miguel Martin: Yeah, I appreciate that. So Germany is obviously a key market for us. As I said, we're one of three companies that have domestic production, which is a significant advantage. We're hopeful that we're going to hear something in late spring, particularly around the de-scheduling or the removal of cannabis with a narcotic designation.
And others look so momentum builds momentum, particularly in that part of the world.
<unk>.
We're thrilled about that progress and looking forward to seeing the regulations when they come out.
Thank you very much Greg.
You're welcome I appreciate it.
Our next question comes from Matt Bottomley from Canaccord. Please proceed.
Miguel Martin: That in itself will have a massive impact to that market because it will allow both the pharmacists that prescribe it as well as the patients to have greater access to that product. Now, the actual timing and how this is going to manifest itself we'll have to see in the regulations. We are very supportive, though, of these actions and have found that the German regulators, Whether it's been the approval process, the testing process, the certification process, have all done a really good job with this, and these things take time, but we think that that legislation is going to have a really significant impact for those companies like us that participate in the medical portion of that, and obviously will have a tag-along impact as we see other markets around them, such as Poland, Czech Republic.
Good morning, everyone and thanks for the color. So far just wanted to pivot back had more domestically.
And the Canadian medical side of things not something that gets talked about a lot in general just given that it's a pretty immaterial portion of most other Lps.
<unk> at this point so it seems like it's been at this.
25 million a quarter $100 million revenue business for some time and I. Just wondering if you can maybe explain or give some more color on the dynamics of is the overall market Tam of medical slowly shrinking given that retail is not hard to find particulate provinces like Ontario, and then just strategies maybe in order to increase that share whether it's through other Lps.
Miguel Martin: France and others, look, momentum, you know, builds momentum, particularly in that part of the world, and, you know, we're thrilled about that progress and looking forward to seeing the regulations when they come out. Thank you very much. You're very welcome, Fred. Our next question comes from Matt Bottomley from Canaccord. Please proceed. Good morning, everyone. Thanks for the color so far.
Closing up shop, or other strategic initiatives in order to to get increased registrations into Iraq.
Well, Matt good morning, and listen it's a great question I think there's two parts to that question. So let me take the question as you laid it out and then I'll add a little color to it. So yes, we believe that the roughly $400 million a year of Canadian.
Revenue is declining slightly we've been able to offset that by growing our market share that being said, we do think there's opportunities to grow that pie now the impact initially due to the growth of the rack business in the availability of raw products did have an impact, but because of the reimbursement aspect that you.
Matt Bottomley: I just wanted to pivot back to the more domestic Canadian medical side of things, not something that gets talked about a lot in general, just given that it's a pretty immaterial portion of most other LPs' strategies at this point. So, it seems like it's been at this $25 million a quarter, $100 million revenue business for some time. And I'm just wondering if you can maybe explain or give some more color on the dynamics of the overall market TAM of medical marijuana slowly shrinking, given that retail is not hard to find, particularly in provinces like Ontario, and then just strategies maybe in order to increase that share, whether it's through other LPs kind of closing up shop or other strategic initiatives in order to get increased registrations into Aurora. Well, Matt, good morning.
Wouldn't get in a recreational environment, we see those patients that are in that system.
Particularly the veteran patients.
Getting great value and great service that they would not get in the rack business, mostly because of the reimbursed model and so there's that secondly, we do see an opportunity for that Canadian medical business to grow we are seeing interest in unions and others sort of entities look.
<unk> cannabis as a benefit getting bigger and I will mention that we're now starting to see more and more clinical trials and the traditional medical establishment doing work on cannabinoids that would open up today. It is only 1% of the Canadian adult population that is in the medical Canada system. So there is.
Miguel Martin: And listen, it's a great question. I think there are two parts to that question. So let me take the question as you laid it out, and then I'll add a little color to it. So yes, we believe that the roughly $400 million a year of Canadian revenue is declining slightly. We've been able to offset that by growing our market share. That being said, we do think there are opportunities to, you know, grow that pie. Now, the impact initially due to the growth of the REC business and the availability of REC products could have an impact. But because of the reimbursement aspect that you wouldn't get in a recreational environment, we see those patients that are in that system, particularly veteran patients, getting great value and great service that they would not get in the recreational business, mostly because of the reimbursed model. And so there's that.
Plenty of opportunity now.
The medical canvas business is the highest margin portion of all candidates globally. So it's an incredibly compelling piece. The other thing that's very important to understand is that having excellence in Canada.
It is such a critical federal.
Legal medical cannabis market allows you to learn and become adept at navigating other federally legal cannabis markets of which we're now the largest and so are 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 World class production in Canada, and shipping those EU GMP products around the world. So listen we are thrilled about our leadership in the Canadian market and being a Canadian medical cannabis company.
Miguel Martin: Secondly, we do see an opportunity for that Canadian medical business to grow. We are seeing interest in unions and other sorts of entities looking at cannabis as a benefit getting bigger. And I will mention that we're now starting to see more and more clinical trials and the traditional medical establishment doing work on cannabinoids that would open up. Today, only 1% of the Canadian adult population is in the medical cannabis system.
But clearly we got great advantages of leveraging that exact same system all around the world.
Great I appreciate all that just one more for me on general sort of philosophy or strategy. When you. When you kind of look at a number of these international markets I'm just wondering in terms of the timing of allocation and deployment of capital our M&A dollars into certain markets, particularly in Europe.
Miguel Martin: So there is plenty of opportunity. Now, the medical cannabis business is the highest-margin portion of all cannabis globally. So it's an incredibly compelling piece.
What are some of the key things that maybe you look at what you had one of your U S counterparts earlier this week announced the deal into Poland I know Paul on the market you guys have talked about a little bit I think they had mentioned theres a huge amount of investment in lifetime into getting products registered which if you get into the market now obviously can be a benefit in terms of first mover, but are there other things you look at it is it.
Miguel Martin: The other thing that's very important to understand is that having excellence in Canada, which is such a critical federally legal medical cannabis market, allows you to learn and become adept at navigating other federally legal cannabis markets, of which we're now the largest. And so, the leadership that we have in Germany and Poland, in other 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 and shipping those EU GMP products around the world. So listen, we are thrilled about our leadership in the Canadian market and being a Canadian medical cannabis company. But clearly, we get great advantages out of leveraging that exact same system all around the world. I appreciate all that.
The scarcity of licenses.
Overall regulatory.
E landscape with with respect to how things are written up.
Versus timing of when you expect maybe markets to launch it's something that gets talked about a lot in this sector, but I think a lot of investors have been more or less have seen the candidate kicked down the road with bond markets outside of the U S and Canada actually has really started to gain acceleration.
Yes, it's a great question and I think it's one that we spend a lot of time on and I would argue that we're one of the best at so we have a pretty significant modeling work that's done on each of these markets. We also spend a significant amount of money in the local markets.
Matt Bottomley: Just one more for me on the general sort of philosophy or strategy when you kind of look at a number of these international markets. I'm just wondering, in terms of the timing of the allocation and deployment of capital or M&A dollars into certain markets, particularly in Europe, what are some of the key things that maybe you look at? You had one of your U.S. counterparts earlier this week announce the deal into Poland. I know Poland's a market you guys have talked about a little bit. I think they mentioned there's a huge amount of investment and lag time into getting products registered, which, if you get in the market now, obviously can be a benefit in terms of first mover. But are there other things you look at?
Having people in the local markets, particularly on the <unk> side. So I would tell you when you boil it down the calculation is really based on three core segments. The first is our assessment of the regulatory environment is it going to be science based is it going to be EOG ANP what is the testing.
I'm going to be what is the registration system going to be that you just mentioned and what we've found is that there are some markets.
<unk>, Germany like Poland like lot of the markets that we're in that are very rigorous in these processes their science space they do their own testing.
You know, it's very formal now in some cases it takes longer than people would like but usually they do not go backwards and so you can have predictability in terms of those investments. The second aspect would be you know the size of.
Miguel Martin: Is it the scarcity of licenses, just the overall regulatory landscape with respect to how things are written up versus the timing of when you expect maybe markets to launch? It's something that gets talked about a lot in this sector. But I think a lot of investors have been, more or less, seen the can get kicked down the road when markets outside of the U.S. and Canada actually have really started to gain acceleration. Yeah, listen, it's a great question, and I think it's one that, you know, we spend a lot of time on, and I would argue that we're one of the best at.
The opportunity is it going to be self pay or is it going to be reimbursed once.
What's the size of the population what are the overall economics that allow us to make a.
Thoughtful investment thesis about where we're going to go and then third is how are we going to play that market and we've demonstrated great flexibility, whereas in some markets, where both the manufacturer and the wholesaler and the sales organization and in other markets. We will just be the manufacturer and partner with World class wholesalers.
Miguel Martin: So we have pretty, you know, significant modeling work that's done on each of these markets. We also spend a significant amount of money in the local markets, having people in the local markets, particularly on the GRGA side. So I would tell you that when you boil it down, the calculations really are based on three core segments.
Sales organizations and so on all of that I think we've done an excellent job and as I mentioned one of the benefits is youre seeing the same companies and particularly Aurora being successful in all of these markets and unlike say, Canada, usually the top five companies will account for two thirds of three quarters of the AUM.
Miguel Martin: The first is our assessment of the regulatory environment. Is it going to be science-based? Is it going to be EU GMP? What is the testing system going to be like? What is the registration system going to be that you just mentioned? And what we've found is that there are some markets... like Germany, like Poland, like a lot of the markets that we're in, that are very rigorous in these processes. They're science-based. They do their own testing. You know, it's very formal.
<unk> business in these European markets, whereas in Canada might take 20 or 30 companies. So the benefits are there and as I said the same execution in the same infrastructure EOG MP products.
<unk> registration.
All of the work that we do on the science side allows us to sell the same products in Poland and Germany.
In the UK and develop great efficiencies for us so.
It's difficult, it's something that we spend a lot of time on but it's definitely paid.
Miguel Martin: Now, in some cases, it takes longer than people would like, but usually they do not go backwards. And so you can have predictability in terms of those investments. The second aspect would be the size of the opportunity. Is it going to be self-pay, or is it going to be reimbursed?
Dividends for us as you see from our results.
Okay, Great I'll get back in queue and appreciate all the details on that Mcgough you got it. Thank you.
Yeah.
Our next question comes from Tami Chen from BMO capital markets. Please proceed.
Oh, great. Thanks.
Miguel Martin: What's the size of the population, and what are the overall economics that allow us to make a thoughtful investment thesis about where we're going to go? And then third, how are we going to play that market? And we've demonstrated great flexibility, where in some markets, we are both the manufacturer and the wholesaler and have a sales organization. And in other markets, we'll just be the manufacturer and partner with world-class wholesalers and sales organizations. And so in all of that, I think, you know, we've done an excellent job. And as I mentioned, one of the benefits is that you're seeing the same companies, and particularly Aurora, being successful in all of these markets. And unlike, say, Canada, 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.
First question is going back to Australia. So Mega you talked about how the number of approvals continues to grow.
A significant increase compared to 2015.
I just wanted to revisit this part like what has really caused the Australian market two experienced such rapid growth like we see some other medical market that you know legalized, but grocer isn't as significant because there've been some further regulatory changes over these last few years that have really.
<unk> increased or yeah interest and acceptance of medical cannabis amongst physicians. There just curious what is driving this quite rapid growth.
Yeah, Jamie it's a great question I think.
I'll tell you, there's probably three key aspects to this.
First is that the PGA, which is the primary regulatory agency has done a exceptional job at.
Miguel Martin: So the benefits are there, and as I said, the same execution and the same infrastructure, EOGMP products, you know, GR registration, all of the work that we do on the science side allows us to sell the same products in Poland, in Germany, in the UK and develop, you know, great efficiencies for us.
Rolling out regulations, and having it be easier for all steps of the process and so what do I mean by that the process in which physicians and clinicians can sign up to be a prescribing physician.
He's in which pharmacies can be registered and be allowed to service the patients the patients ability to register through as I mentioned it is a very large reimbursed market. So the economics works well they have a compassionate care program for those that are economically challenged.
Miguel Martin: It's something that we spend a lot of time on, but it's definitely paid dividends for us, as you can see from our results. Okay, great. I'll get back in queue and appreciate all the details on that, Michael. You got it.
Miguel Martin: Thank you. Our next question comes from Tamy Chen from BMO Capital Markets. Please proceed. Oh, great. Thanks. First question is going back to Australia.
To have access to medical cannabis through that so that would be the first part.
Tamy Chen: So, Miguel, you talked about how the number of approvals continues to grow, a significant increase compared to 2016. I just wanted to revisit that part. What has really caused the Australian market to experience such rapid growth? Like, we see some other medical markets that, you know, legalize marijuana, but the growth just isn't as significant. Like, have there been some further regulatory changes over these last few years that have really increased or, yeah, increased the acceptance of medical cannabis amongst physicians? They're just curious what is driving this quite rapid growth. Yeah, Tamy, it's a great question.
The second part is they've also been very thoughtful at the local level. So there's sometimes there's tension between the federal legalization and what happens at the state level, we have not seen that in Australia, and so you've seen a very you know specifics or the cadence and move forward and then I think third culled.
<unk> cannabis has been accepted in this market and I think that those companies that have operated there have done a really good job, which is why we've seen such consolidation and market share the largest market share company in that market as over a 30 share. We're number two in the low twenties and then there is one right.
So all of that I think has come together, they obviously know unlike some other markets we've seen.
Miguel Martin: I think, you know, I would tell you there are probably three key aspects to this. First, the TGA, which is the primary regulatory agency, has done an exceptional job at rolling out regulations and making it easier for all steps of the process. And so, what do I mean by that? The process in which physicians and clinicians can sign up to be prescribing physicians, the ease with which pharmacies can be registered and be allowed to service the patients, and the patient's ability to register through.
The T G. A is being so rigorous with their authorizations and their review of acceptable products. We don't we think this will continue to be a market that advantage as those companies that have that type of rigor to their production to their certification and this is all <unk>.
<unk> in the absence of other formats that we see being larger than other markets, particularly in <unk> and vapor.
Miguel Martin: As I mentioned, it is a very large reimbursed market, so the economics works well. They have a compassionate care program for those that are economically challenged to have access to medical cannabis through that. So that would be the first part. The second part is that they've also been very thoughtful at the local level. So there's, you know, sometimes there's tension between, you know, federal legalization and what happens at the state level. We have not seen that in Australia.
Alex and so and those will be coming online and can only grow. This overall market. So we're excited about it it's a part of the world that you know where this is sort of.
An important piece and we're really really excited about this acquisition.
Great that's helpful.
Well sticking with that I was curious to understand why now for timing of decline the rest of the stake in them.
And that really is Australia is that just you know you've seen the market experienced tremendous growth and felt like now is the right time and lastly did you say that this business maybe relief Australia hi.
Miguel Martin: And so you've seen a very, you know, specific sort of cadence and move forward. And then, I think, culturally, cannabis has been accepted in this market. And I think that those companies that have operated there have done a really good job, which is why we've seen such consolidation in market share. The largest market share company in that market has over a 30% share. We're number two in the low 20s.
Higher gross margin than your current international business. Thanks.
Yeah. So let me take the second one first and then I'll take the first one. So currently we are the supplier we are the manufacturer.
For Med relief, Australia, they have their own sales organization they have their own clinic connection organization and so our margins were lower so my statement was that PON.
Miguel Martin: And then there's, you know, one right below us. So all of that, I think, is coming together to have this be. Now, you know, unlike some other markets we've seen, because the TGA is being so rigorous with their authorizations and their review of acceptable products, we don't, you know, we think this will continue to be a market that advantages those companies that have, you know, that type of rigor to their production, to their certification. And, you know, this is all happening in the absence of other formats that we see being larger in other markets, particularly And so those will be coming online and can only grow this overall market, so we're excited about it. It's a part of the world that, you know, this is sort of, you know, an important piece. And we're really, really excited about this acquisition. Great, that's very helpful.
Acquisition it would be similar.
From a margin standpoint to other markets that we haven't seen in western Europe, or eastern Europe, which are some of the highest margins you see in cannabis globally.
As those margins today are in the low low sixties in terms of why now I would say there are <unk>.
Couple of things one is as I talked to you about earlier I mentioned earlier about our analysis about regulations market size.
Our ability to sort of leverage that and we felt that we're in an inflection point because of the size of the market because of where the regulations were and because of our ability to leverage innovation in some of these new formats coming on clearly you know the.
Other side the owners of the business also had to be aligned that this was the right time and.
I can only say great things about what they've done to build this business.
As I said the founders next pharmacists and that team has done just an a superb job.
Tamy Chen: Sticking with that, I was curious to understand why now, for the timing of acquiring the rest of the stake in MedRelief Australia, is it just, you know, you've seen the market experience tremendous growth and felt like now was the right time? And lastly, did you say that this business, MedRelief Australia, has a higher gross margin than your current international business? Thanks. Yeah, so let me take the second one first, and then I'll take the first one.
In building this business and we've collectively thought this was the right time to take the next step and with the products that we have online to be able to leverage in Australia with the.
The cash position that we have and everything else going on the collectively both Aurora management as well as the ownership of <unk>, Australia felt this was exactly the right time.
<unk>.
This will still happen.
Okay, great. Thank you.
Very welcome.
Our next question comes from Doug <unk> from RBC capital markets. Please proceed.
Miguel Martin: So, currently, we are the supplier, and we are the manufacturer for MedRelief Australia. They have their own sales organization, they have their own clinic connection organization, and so our margins are lower. So my statement was that, upon acquisition, it would be similar from a margin standpoint to other markets that we have, say, in Western Europe or Eastern Europe, which are some of the highest margins you see in cannabis globally. You know, as those margins today are in the low 60s.
Yes, good morning.
My question just has to do with our capital allocation. When you look at the Australian acquisition in the amount of time.
Cash used versus shares issued can you walk through the decision making process there and why you decided you needed so much dilution relative to.
The $10 million or so Oh, 8 million Canadian Paydown, especially given that.
Miguel Martin: In terms of why now, you know, I would say, you know, there are a couple of things. One is, as I talked to you about earlier, I mentioned earlier about our analysis of regulations and market size. And our ability to sort of leverage that, and we felt that we were in an inflection point because of the size of the market, because of where the regulations were, and because of our ability to leverage innovation in some of these new formats coming on. Clearly, you know, the other side, the owners of the business also had to be aligned that this was the right time.
Your balance sheet is so much better now and you're on the cusp of turning free cash flow positive. Thank you.
Sure well I'll make a couple of comments and then allow blend to get there I think you know we are we have worked incredibly hard to take out the.
<unk>, a $1 billion in the convertible debt and really wanted to demonstrate that the company is being incredibly thoughtful with the financial decisions that we make now that's not going to come at the expense of growth and so it was our opinion.
Miguel Martin: And, you know, I can only say great things about what they've done to build this business. Like I said, the founders and ex-pharmacists, and that team have done just a superb job building this business, and we collectively thought this was the right time to take the next step. And, you know, with the products that we have online to be able to leverage in Australia, with the, you know, the cash position that we have, and everything else going on, the collectively both Aurora management, as well as the ownership of Medrelink Australia, felt this was exactly the right time for us to, you know, make this deal happen. Okay, great. Thank you. You're very welcome.
That was the right allocation to use that amount of stock versus the amount of cash.
In order to retain maximum flexibility with that cash position and I think I understand your point about dilution, but I think from a shareholder standpoint, if you look at that valuation and you look at the <unk>.
Trailing 12 month revenue as of December 31 was about $40 million in Australia, and the fact that it's accretive day one.
We believe that is the was the right allocation.
Douglas Miehm: Our next question comes from Doug Miehm from RBC Capital Markets. Please proceed. My question just has to do with capital allocation.
For this deal going forward, but with.
Understand the question, but all in all if you look at where we are now free cash flow positive by the end of the year.
Miguel Martin: When you look at the Australian acquisition and the amount of cash used versus shares issued, can you walk through the decision-making process there and why you decided you needed so much dilution relative to the $10 million or so, or $8 million Canadian that you paid out, especially given that your balance sheet is so much better now and you're on the cusp of turning free cash flow positive? Thank you. Sure, Doug. I'll make a couple of comments and then allow Glenn to get there.
Roughly $200 million in cash on hand, no debt on the cannabis business.
And now with this piece coming online, which may be as large as Canada.
Which would make it the largest federally legal medical cannabis market in the world, we feel really good about it.
And that was the structure of the deal, but Glenn anything you want to add to the allocation there.
No, it's pretty thorough maybe I'll do it well.
We've been very consistent in our messaging over the last couple of years that.
Miguel Martin: I think, you know, we have worked incredibly hard to take out almost half a billion dollars in convertible debt and really want to demonstrate that the company is being incredibly thoughtful with the financial decisions that we make. But that's not going to come at the expense of growth. And so it was our opinion that that was the right allocation to use that amount of stock versus the amount of cash in order to retain maximum flexibility with that cash position. And I think, you know, I understand your point about dilution, but I think from a shareholder standpoint, if you look at that valuation and you look at their, you know, trailing 12-month revenue as of December 31st, it was about $40 million in Australia. And the fact that it's an accretive day one.
Share issuance, we really try to focus that on <unk>.
Mental accretive new business, so its strategic focus as opposed to you know.
Back a number of years ago, a number of cannabis companies used to fund operations. So this is not about funding operations. This is about adding that.
Incremental revenue and margin that Miguel has talked about very accretive to value is quite compelling.
The strategic reasons that Mcgovern laid out.
But we see chairs as a valuable tool when we are looking at it strategically so thats when it was.
Part of the thinking on this as well consistent with what we've told you in the market over the last couple of years of what we preserve our shares for.
Okay.
That's helpful. And then just maybe as a follow up there given that this group is going to be reasonable size shareholder of the company would you expect them to be.
Miguel Martin: You know, we believe that was the right allocation, you know, for this deal going forward. But listen, I understand the question, but all in all, you know, if you look at where we are now, free cash flow positive by the end of the year, roughly $200 million in cash on hand, no debt on the cannabis business. And now with this piece coming online, which may be as large as Canada, which would make it the largest federally legal medical cannabis market in the world, we feel really good about it. And, you know, that was the structure of the deal. But, Glenn, anything you want to add to the allocation there? No, it's pretty thorough, Miguel.
Long term I'm sure.
Shareholders of the company.
I don't know I mean, that's going to be up to the up to the shareholders. We would hope everybody would be a long term shareholders of this company, but that's their decision and.
I think it does not.
It doesn't have any bearing in terms of how we run the company or the deal or anything going forward.
Okay, great. Thank you.
You got it thank you.
Okay.
Our next question comes from Pablo Sonic Transatlantic and Associates. Please proceed.
Morning, everyone.
Just thinking about the potential acquisitions, you need to make in Germany. Following what you did in Australia, maybe explain the difference of your Oh.
Glenn Ibbitt: Doug, I will note, you know, we've been very consistent in our messaging over the last couple of years that, you know, the share issuance, we've really tried to refocus that on incremental, creative new business, you know, so it's a strategic focus as opposed to, you know, a number of cannabis companies used it to fund operations back a number of years ago. So, this is not about funding operations; this is about adding, you know, that incremental revenue and margin that Miguel's talked about. Very creative, and the value is quite compelling. So, all the strategic reasons that Miguel laid out, but we see shares as a valuable tool when we are looking at them strategically. So, that's, you know, that was part of the thinking on this as well, consistent with what we've told you in the market over the last couple of years about what we reserve our shares for. Okay, that's helpful. And then, just maybe, as a follow-up there, given that this group is going to be a reasonable-sized shareholder of the company, would you expect them to be long-term shareholders of the company? I don't know.
Underground business model indicates so Australia, what's shipping from from kind of the right I'm pretty much.
Australia was taken care of everything else and I guess with <unk>.
Germany. It seems to me that you have more assets on the ground with feet on the ground, but you know once we cover the change youre not going to slow and other changes do you think you would need to make acquisitions in Germany or pretty much just about investing on what you have already.
Got it I mean, you know Pablo I think.
For Australia, we found such a great partner.
That we were comfortable with not.
Going all the way through and obviously it impacted the margin when you just the manufacturer.
Thus the trigger to buy the rest of it so that we could experience the same margins that we've seen in other parts of the world, Germany was different and.
You know that covenant as far as we very early on again to go back to those three criteria, we got very comfortable with the regulators and the regulatory process. We got very comfortable with the size of the market and the fact that it was going to be a reimbursed market with also a large self pair and.
Miguel Martin: I mean, that's going to be up to the shareholders of it. We would hope, you know, everybody would be a long-term shareholder of this company, but that's their decision.
Douglas Miehm: And and, you know, I think it doesn't have any bearing in terms of how we run the company or the deal or anything going forward. Okay, great. Thank you. You got it.
And we also got comfortable.
With the unique proposition that they offered there to have in country manufacturing and be aligned with the government and her first mover status. It was for that reason that you're right that we have quite a significant amount of head count and infrastructure both in Berlin.
Pablo Zuanic: Thank you. Our next question comes from Pablo Zuanic from Zuanic and Associates. Please proceed. Good morning, everyone.
Miguel Martin: Miguel, you know, just thinking about the potential acquisitions you need to make in Germany, you know, following what you did in Australia, maybe explain the difference of your on-the-ground business model. In the case of Australia, you were shipping from Canada, right, and pretty much... In the case of Germany, it seems to me that you have more assets on the ground, more feet on the ground. But, you know, once we have a change in the narcotics law and other changes, do you think you will need to make acquisitions in Germany, or pretty much it's about investing on what, Yeah, I mean, you know, Pablo, I think for Australia, we found such a great partner, that we were comfortable with not, you know, going all the way through. Now, obviously, it impacted the margin when you're just a manufacturer. That's the trigger to buy the rest of it so that we could experience the same margins that we see in other parts of the world. Germany was different.
Where we have sales marketing finance back office, and very importantly government relations.
Work, there as well as the production team that we have at Molina and I think that shows our flexibility and if you go east and you look at a country like Poland, We've got sales and marketing.
In Poland, but we don't do any production in Poland, because we can bring product in at a very efficient way with our new generics coming in from Canada. If you look at let's say a market like the like the Czech Republic, We work with partners same thing, we do in Switzerland, and whether the Austria and so I think you have to be flexible, but at the core.
Or you have to have the products that patients and clinicians want and we're able to do that incredibly efficiently out of Canada, but as markets get there we're going to continue to make investments and we're thrilled to have that.
The opportunity now to be completely integrated.
Miguel Martin: And obviously, you know that. You've been covering this for us. We very early on, again, to go back to those three criteria, we got very comfortable with the regulators and the regulatory process. We got very comfortable with the size of the market and the fact that it was going to be a reimbursed market with also a large self-payer. And we also got comfortable with the unique proposition that they offered there to have in-country manufacturing and be aligned with the government and first mover status. It is for that reason that you're right that we have quite a significant amount of headcount and infrastructure, both in Berlin, where we have sales, marketing, finance, back office, and, very importantly, government relations work there, as well as the production team that we have at Moyna. And I think that shows our flexibility.
In Australia, which will look a lot like we have in Germany.
Alright.
Just a quick follow up and the use of Australia. So they don't have production there.
The company will acquire is that something you would look at down the road, especially when Youll see that guess, what Israel dumping claims under marketing in Israel shutting down every now and then is that at least in Australia would you need to have local production there and if you can expand on the argument you made about body, Australia and two in Australia two other players. Thanks sure obviously.
On Israel, we haven't shipped to Israel and in a year.
But.
We are not.
You know we've had production as you well know.
And the other parts of the World and what we have found which is really important is that in all of these environments. They allow for the importation.
Registered or certified product in most cases thats EU GMP.
In Australia, they've been very thoughtful they have their own registration process and certification process and.
Miguel Martin: And if you go east and look at a country like Poland, we've got sales and marketing in Poland, but we don't do any production in Poland because we can bring product in a very efficient way with our new genetics coming in from Canada. If you look at, say, a market like the Czech Republic, we work with partners. The same thing we do in Switzerland and with Austria.
And we've worked with them on that and so because the economics and the efficiencies.
Being able to do that in a centralized place like Canada.
As such an incredible place for us to grow we can leverage the same genetics. The same process at very low energy costs and production costs and ship it around the world. That's a significant advantage for us and we've not heard anything in Australia or none of those markets that would restrict the ability of Canadian grown eo.
Miguel Martin: And so I think you have to be flexible, but at the core, you have to have the products that patients and clinicians want, and we're able to do that incredibly efficiently out of Canada. But as markets, you know, get there, we're going to continue to make investments, and we're thrilled to have that opportunity now to be completely integrated into Austria, which will look a lot like we have in Germany. And just a quick follow-up, in the case of Australia, because they don't have production there, the company you acquire, is that something you would look at down the road, you know, especially when you see the case of Israel, you know, with dumping claims and the market in Israel shutting down every now and then, is that a risk in Australia, would you need to have local production there, and if you're going to expand on the Sure, I'd be happy to.
GMP or GJ authorized flower to come into those markets now if we found something locally.
In any market, we've got a long history of managing a variety of different facilities and so we definitely.
Could do that but we have not seen that in Australia now in terms of you know.
Your point about restrictions the TGI the primary regulatory.
Authority in Australia is incredibly rigorous and what they allow so first and foremost the registration process is very rigorous in their requirements are consistent with what we see in Europe would take anywhere between eight and 12 months for every new product to be brought in.
And they review that they do their own testing.
Which they're reviewing the actual CLA or certificates of assurance for all of these key products. So you have to have vigilance and precision in your in your production. They review every aspect of the labeling and the packaging.
Miguel Martin: Just on Israel, we haven't shipped to Israel in a year. You know, we've had production, as you well know, and other parts of the world. And what we have found, which is really important, is that in all of these environments, they allow for the importation of registered or certified products. In most cases, that's EU GMP.
As well as have certification for wholesale deliveries and the pharmacies, it's a high bar.
Which is why you see concentration and I don't think youre going to see.
Miguel Martin: In Australia, they've been very thoughtful. They have their own registration process and certification process, and we've worked with them on that. And so because of the economics and the efficiency of being able to do that in a centralized place like Canada, which is such an incredible place for us to grow, we can leverage the same genetics, the same process at very low energy costs and production costs and ship it around the world. That's a significant advantage for us. And we've not heard anything in Australia or none of those markets that would restrict the ability of Canadian-grown EU GMP or TGA-authorized flower to come into those markets. Now, if we found something locally...
Actions in Australia that maybe you've seen in other markets.
And for that reason you see good margins and so we're excited about that we love working with the PGA.
And like I said.
People can get a little frustrated about the pace, sometimes progress, but when you have great markets, like Australia, or Germany, or others. They don't go backwards and that's very important from an asset allocation and I think that's why we're so excited about it and I think why we do so well there.
Alright, thank you.
Very welcome Pablo.
This concludes our question and answer session.
Like to turn the floor back over to Magellan Martin for closing comments.
Well first and foremost we thank everybody for your interest in Aurora. We are so excited about where we are and as I said earlier, we've never been in better shape. Today. It was a great day to announce the progress that we've made in the core business, but as importantly announced the acquisition of a great asset and one of the fastest growing and largest medical cannabis markets in the <unk>.
Miguel Martin: In any market, we've got, you know, a long history of managing a variety of different facilities, and so we definitely could do that, but we had not seen that in Australia. Now, in terms of your point about restrictions, the TGA, the primary regulatory authority in Australia, is incredibly rigorous in what they allow. So, first and foremost, the registration process is very rigorous, and their requirements are consistent with what we see in Europe, but it takes anywhere between, you know, 8 and 12 months for every new product to be brought in, and they review that. They do their own testing, and they're reviewing the actual COAs or Certificates of Assurance for all of these key products, so you have to have, you know, vigilance and precision in your production. They review every aspect of the labeling and the packaging, as well as have certification for wholesale delivery and pharmacies.
World. We continue to believe medical cannabis is the best place to be in cannabis globally, and we've demonstrated our leadership there. So we thank everybody again and we.
We look forward to speaking to you soon all the best.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Hum.
[music].
Miguel Martin: It's a high bar, which is why you see, you know, concentration, and I don't think you're going to see, you know, actions in Australia that maybe you've seen in other markets. And for that reason, you see good margins, and so we're excited about that. We love working with the TGA, and like I said, you know, people can get a little frustrated about the pace of progress, but when you have great markets like Australia or Germany or others, they don't go backwards, and that's very important from an asset allocation point of view, and I think that's why we're so excited about it, and I think why we do so well there. Thanks. You're very welcome, Pablo. This concludes our question and answer session.
Yeah.
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Hum.
Hmm.
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Sure.
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Miguel Martin: I would like to turn the floor back over to Miguel Martin for closing comments. Well, first and foremost, we thank everybody for your interest in Aurora. We are so excited about where we are, and as I said earlier, we've never been in better shape. You know, today was a great day to announce the progress that we've made in the core business, but, more importantly, to announce the acquisition of a great asset in one of the fastest growing and largest medical cannabis markets in the world. We continue to believe medical cannabis is the best place to be in cannabis globally, and we've demonstrated our leadership there.
Mhm.
Miguel Martin: So we thank everybody again, and we look forward to speaking to you soon. All the best. Bye. This concludes today's teleconference. You may disconnect your lines at this time.
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Hum.
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