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Aurora Cannabis Focuses on the US CBD Market

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On September 12, Aurora Cannabis (ACB) Chair Michael Singer spoke with CNN Business. He said, “We expect to have a significant footprint in the US in the coming quarters.” The company also highlighted its “laser-focused” stance on the hemp-derived CBD (cannabidiol) market in the US on its fourth-quarter earnings call.

BDS Analytics and Arcview Market expect the combined cannabis and hemp-derived CBD markets in the US to be worth more than $20 billion by 2024. Based on $1.9 billion in CBD sales in 2018, this estimate indicates a compound annual growth rate of 49%. Cowen also expects overall CBD sales to reach $16 billion by 2025. Nielsen expects the US hemp-derived CBD market to be worth $6.0 billion by 2025.

The company is focused on leveraging this opportunity by becoming one of the early entrants in the underpenetrated US CBD market.

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Aurora Cannabis sheds light on US CBD strategy

Aurora Cannabis made its first formal entry in the US hemp-derived CBD market by forging a clinical research partnership with the UFC (Ultimate Fighting Championship). According to its earnings call, the company will evaluate CBD’s potential in treating pain and enabling athletes’ overall recovery.

According to its press release, ACB is focused on product development and brand building in the US hemp-derived CBD space. The company aims to launch products backed by robust scientific data. This could prove to be a key differentiator compared to untested CBD products. To know how scientific discussion is becoming important in the cannabis industry, read Medical Cannabis: A Hot Topic at Events Across the World.

How changing regulations can affect Aurora Cannabis

Aurora Cannabis’s enthusiasm for this opportunity was evident during its earnings call. Chief Corporate Officer Cam Battley highlighted the possibility of the company entering the commercial hemp-derived CBD landscape ahead of the anticipated FDA clarifications about the Farm Bill. However, this could expose the company to significant regulatory risk. To learn more about the Farm Bill, read Farm Bill Clears the Way for Cannabis Companies.

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The broader cannabis industry, however, awaits clarification from the government on issues related to interstate commerce of hemp plants. According to Marijuana Business Daily, the lack of a standardized testing mechanism for THC (‎tetrahydrocannabinol) across states can land businesses in legal trouble. The FDA is also working to assess regulatory frameworks to govern CBD-based products marketed for nondrug use.

According to its fourth-quarter earnings results, Aurora Cannabis is mainly concerned about the FDA’s policy related to CBD-based ingestibles. The company doesn’t expect a negative response from the FDA. Instead, it expects guidance about the use of CBD isolates or broad-spectrum CBD in ingestibles.

According to its fourth-quarter earnings results, Aurora Cannabis expects the FDA may require ingestibles to contain only CBD isolate. According to hempika.com, CBD isolate is the purest form of naturally occurring CBD. The company believes this to be a logical conclusion, considering that the cannabis plant contains around 112–113 cannabinoids. The World Health Organization has also marked only pure CBD as safe for ingestion. Aurora Cannabis is thus focused on aligning its US strategy with these anticipated FDA decisions.

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Competition in the US CBD space

According to its first-quarter earnings call, Canopy Growth (CGC) has already planted thousands of acres of hemp in the US. The company has also secured raw materials and processing capabilities in preparation for the upcoming product launch.

According to its first-quarter earnings call, Canopy Growth expects to increase extraction and production capacity at its manufacturing facility in Kirkwood, New York, by 2021. The company also plans to increase the number of manufacturing facilities to support its CBD-based vape and beverage production by 2021. It has also invested in building a robust team to support its upcoming US CBD business.

To know more about Canopy Growth’s latest launch in the US CBD market, read Martha Stewart and Canopy Launch Cannabis Products.

How analysts rate Aurora Cannabis

In the fourth quarter, Aurora Cannabis reported revenue of $74.98 million, YoY (year-over-year) growth of 407.02% but $3.26 million lower than the consensus estimate. The company also reported non-GAAP EPS of $0.0, $0.04 higher than the consensus estimate. Subsequently, Aurora Cannabis stock fell 9.24% and closed at $5.89 on September 12. To learn more, read Aurora Cannabis Stock Fell Approximately 9%: Time to Buy?

Despite the setback, analysts in the US maintain a 12-month consensus target price of $8.5 for the company. This indicates an upside potential of 42.86% based on its closing price of $5.95 on September 13. Six analysts in the US are covering the company. Of these, two give it “strong buys,” two give it “buys,” and the remaining two give it “holds.”

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