Aurora Cannabis strikes oil in Germany, and higher margins for revenues and profits should be announced – The Fool Motley

Almost everyone is focused on Aurora Cannabis& # 39; (NYSE: ACB) great opportunity in the Canadian market for recreational marijuana. The company got off to a good start with this opportunity, conquering a 20% market share in its last quarter.

But almost everyone also knows that the future of Aurora depends largely on international markets for marijuana for medical purposes. Germany is the biggest of these international opportunities. Aurora Cannabis announced Tuesday it has started selling cannabis oils in German pharmacies. This is a milestone that should mean higher revenues and higher profit margins are coming.

The leader in Germany

Germany has reformed its laws in 2017, allowing patients to have easy access to medical cannabis and offering full insurance coverage. However, the country did not have the infrastructure needed for domestic cannabis production. This opened the door for Canadian marijuana growers.

Aurora Cannabis is quickly established as the leader of the German medical cannabis market. The company acquired Pedanios in May 2017 and renamed its new subsidiary Aurora Deutschland. Pedanios was already the largest importer, exporter and distributor of dried cannabis flowers in Germany.

By September 2017, Aurora had obtained the necessary authorizations to begin exporting dried cannabis flowers from Canada to the German market. The company continued to build relationships with doctors, pharmacies and patients across the country.

Germany is now claiming the largest legal marijuana market outside of North America. According to Arcview Market Research and BDS Analytics, marijuana sales in Canada will total close to $ 1.6 billion by 2022.

Higher and higher

Admittedly, sales of medical cannabis in Germany are not yet close to the forecasts for three years from now. Although Aurora Cannabis is the market leader, its sales remain relatively low.

During the quarter ended December 31, 2018, Aurora reported European revenues of Can $ 2.9 million (approximately $ 2.2 million). This figure represents only 6% of the company's total cannabis revenue.

But cannabis oils are often more popular with patients than dried cannabis flowers. Aurora is expected to see increased demand in the coming quarters as it sells cannabis oils in Germany. This increased demand will translate into increased sales.

In addition, cannabis oils sell better than dried flowers. Glen Ibbott, CFO of Aurora, said during the company's second quarter teleconference that prices of by-products such as oils were 60% higher than those of dried flowers in the Canadian consumer market. Although this premium may be higher than that of the company in Germany, there is no doubt that cannabis oils will generate more revenue for Aurora than dried flowers.

Better still, profit margins will be higher. The opportunity to sell cannabis oils in Germany fits perfectly with the company's strategy of focusing on higher margin products, such as oils in the medical cannabis markets, which offer margins higher than the consumer market.

Just the beginning

Last September, Tilray became the first Canadian producer of marijuana to supply dried cannabis flowers and oils to Germany. The entry of Aurora on the market of cannabis oils could upset the German market. But Germany is only the beginning.

Cam Battley, managing director of Aurora Cannabis, said in his second quarter call that "getting these cannabis oils and, subsequently, different fitness factors in Germany will be a big deal for us". He added that other European markets "would also very much like non-floral cannabis products". Battley is probably right.

The European Union (EU) represents a market of more than 500 million people (including the UK, which is leaving the EU). It's almost 14 times more than the population of Canada. There are only eight cannabis plants in the world that are certified by the European Good Good Process manufacturing process. Aurora Cannabis has two.

Aurora should be able to build on its success in Germany to create market leadership in other European countries. His latest announcement only reinforces the company's position.

Keith Speights has no position in the mentioned actions. The Motley Fool has no position in any of the actions mentioned. Motley Fool has a disclosure policy.