Aurora Cannabis CEO Terry Booth Talks About the Rapid Growth and Expansion of his Company

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Aurora Cannabis Inc. (TSE:ACB) (OTCMKTS:ACBFF) (FRA:21P) is one of the larger licensed producers of marijuana in Canada.  CEO Terry Booth talks about his company’s rapid expansion and their strategy moving forward.

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 TRANSCRIPT:

James West:    Terry, thanks for joining me again.

Terry Booth:   Thanks for having me, James.

James West:    Terry, why don’t we start with an overview: what’s new at Aurora Sky?

Terry Booth:   It’s a fast-moving, fast-paced company. We’re up to 300 employees now.

James West:    Wow.

Terry Booth:   The Sky Project is probably 50 percent complete; we’ve got 400,000 square feet of structure up, expect to have 800,000 more feet of structure up by the end of the year. Vaults are in. The hot water storage tank is in. We’re going to be getting some of our cameras onto our website so you can have a look at it online; it’s pretty exciting.

James West:    Fantastic. How much marijuana is the 800,000 going to grow?

Terry Booth:   100,000 kilograms per year.

James West:    That’s a lot of dope.

Terry Booth:   A lot of weed, a lot of weed. We can joke about it now because of the adult usage market.

James West:    Exactly, exactly! So now, you’re starting with 400,000 square feet, you’re building, I guess what would be a third phase of 400,000 square feet…

Terry Booth:   No, we’re building the whole thing at once.

James West:    How much money has gone into Aurora Sky to date?

Terry Booth:   I think we’re at about 40 million.

James West:    $40 million, eh? And 300 employees. You’re going to crank out 100,000 kg of marijuana.

Terry Booth:   You bet.

James West:    How much of your strategy is focused on the medical versus the recreational upcoming?

Terry Booth:   We’re waiting to see what the Act looks like, waiting to see what the provinces land on, but obviously, the adult usage market is a significant uptick in activity, and that’s why we’re doing the hiring now, to get ready for it. The European angle is playing into it as well, where we’re starting to get busier there.

James West:    Right.

Terry Booth:   Countries are coming out one at a time, and we’re active in Germany – that was a great deal that we did, very happy about that one. And now you’re looking at some other countries. Can’t say much about it yet, but you’ll see it in the Sunday papers pretty soon.

James West:    Oh, okay, interesting. I would normally poke and prod at that, but I won’t at this point.

Terry Booth:   Okay, good.

James West:    So the provincial regulations across the country are sort of a hodgepodge at this point. What is the Alberta strategy?

Terry Booth:   I believe, if I was to take a good educated guess, and I am a part of the roundtable, the Bill of Private Distribution, as they do with alcohol in Alberta.

James West:    Okay. So it’ll be along the same lines as the alcohol system?

Terry Booth:   I believe so.

James West:    Okay. Which makes it more or less easy for anyone who qualifies to open up a marijuana shop?

Terry Booth:   Prequalifications of the province, and then they’ll have another set of inspections, I imagine, to come out and check out the place. Similar to what they do with alcohol, but the province will save a lot of money by doing it that way and still be digging their fingers into our taxes.

James West:    Of course. So how much patient load do you have currently, how much medical marijuana do you sell presently?

Terry Booth:   We’ve topped the 20,000 mark of patients just recently. I think we had in our MD&A, $8 million a quarter, and it continues to grow. We’re still accelerating with that growth; we need cannabis, and we’ve got to get these facilities online. The demand is still there with Aurora, it’s a very popular strain for our patients. We’ve done well with the grow, but now we’re back up to higher yields than we were having last year at this time. A lot of things fixed at the Cremona facility.

James West:    Okay. I noticed also that you bought quite a load of marijuana from Supreme Pharmaceuticals on a wholesale basis. Is that indicative of the fact that your customers are buying everything that you can produce currently?

Terry Booth:   Off the shelves. You bet.

James West:    Is that right?

Terry Booth:   We don’t have any problem with customers. It’s the supply.

James West:    Okay. So I was reading recently that Canada just surpassed the 200,000 patient mark in the whole system. What do you think is going to be the load for recreational users July 1, 2018?

Terry Booth:   20 times.

James West:    Really?

Terry Booth:   Yeah, 20 times that, so it’s going to be quite a challenge. And if you’re not stepping it up right now, you’re going to be in a bit of trouble come the adult usage, when they turn that switch on. We’ve got a number of things going on in the different provinces, with the GR people working; it’s still a roll of the dice on what they’re going to do, though. We’ve got to get the Act out, we’ve got to see the new regulations under that Act, and then we got to see what each province is doing. Nothing is in stone yet.

James West:    Okay. So how much of Aurora’s strategy is focused on a premium dried flower product, relative to a resin or extract product?

Terry Booth:   We think the market under the adult usage will eventually be surpassed by extractions, certainly when the edibles come online. Right now, we’ve not been selling oil for that long; we’re up to 30 percent already of our sales is oil. I expect it to come in at the 50/50 mark before too long. Premium bud, and then there’s bud that you’re growing on a mass basis. We’re going to have boutique strains, probably grown out of our Quebec facility.  A little bit taller, it’ll be managed by the automation.

James West:    Sure. Okay, so just remind me what’s the facility in Quebec look like?

Terry Booth:   It’s 42,000 square feet, they did a real great job of building it. They did a deep water culture as a method; we’ve changed that out now, back to the table system that we use, and it should be licensed very soon.

James West:    Okay. Deep water culture, I’m not familiar with that term.

Terry Booth:   It’s just a different method of grow from hydro. Deep water, they have a bin with rocks in it and they fill it with water. The problem with it is, your roots tend to mix with water very quickly from one plant to the next, so if you’ve got a, if you have plith or something, it will all go down very quickly. You have that filter medium.

James West:    Sure. Does Aurora have a handle on all-in cost of gram production average across your entire organization?

Terry Booth:   I think we’re the best at opening our books to whoever wants to see that. Different companies are using different methods to determine the cost per gram. Now we’re looking at, should it be relative to equivalency factors of THC as well, now that we’ve got oils. So we believe that the Sky facility will be well under $1.00 per gram. Well under a dollar.

James West:    Oh, okay. So is that kind of a Holy Grail for large scale producers to get under $1.00 a gram?

Terry Booth:   I think it’s necessary.

James West:    And do you think that cost per gram is going to be one of the main factors in determining who survives and who does not, post-July 1, 2018?

Terry Booth:   It doesn’t matter what your cost per gram is if you can’t sell it.

James West:    Right.

Terry Booth:   So you have to have those pieces in place. Aurora’s done a good job of that. You know, they had the 19-month head start on us, the Blessed 13, I like to call them. We’ve caught them up now. We’re still the only company with an app. I don’t know why that is; I would expect that the competition would come out with one by now, but they haven’t, and it accounts for a lot of our sales. It reduces our client care costs, it’s 15 seconds and your cannabis is ordered.

James West:    Note to other producers. So then, how much more capital do you think Aurora will have to raise before it reaches a cash flow positive situation?

Terry Booth:   I hope not a penny more.

James West:    Not a penny more?

Terry Booth:   I hope. The amount of growth that’s going on internationally demands that you have a war chest. And you know, I was talking, just the presentation this morning where every quarter I’d say we’ll be cash flow positive, I would think we’ll be. But it’s not because we’re losing money, it’s because we’re spending money, and we’re spending money on that growth. If they keep coming at us as fast as they have with the international opportunities, like Germany and Denmark and Colombia and Uruguay, well, then, we’re going to have to deploy.

We do expect, though, that the Sky facility will pad those books quite well. It’s just a matter of when.

James West:    Sure. Okay, well, let’s leave it there, Terry. That was a great update. Thanks for joining me today.

Terry Booth:   Thanks for having me. It’s good stuff.