Aurora Cannabis (ACB), a popular player in the cannabis industry, wants to grow cannabis outdoors now. In July, it received Health Canada licenses for outdoor cultivation at two Canadian sites. With the cannabis industry evolving, this could be an interesting turning point for the company. Let’s dig into this further.
Why Aurora Cannabis wants to grow cannabis outdoors
To expand in the cannabis market, Aurora Cannabis plans to grow cannabis outdoors in its new sites in Quebec and British Columbia. Aurora will use its new sites, Aurora Valley and Aurora Eau, to perform cultivation research to produce high-quality outdoor cannabis. The two sites have different growing environments, which could allow Aurora to learn more about factors, such as climate conditions, that affect production.
Aurora Valley, the western facility, is a 207-acre operation in British Columbia. Additionally, its eastern facility is a 21,000-square-foot operation at the existing Aurora Eau facility.
In its fourth-quarter earnings call, Aurora mentioned that the first harvest from its outdoor-grown cannabis could occur later in 2020 in the Quebec facility. Further testing and the results of the tests would determine how the company plans to move ahead with outdoor cultivation in 2020.
In 2018, when Canada planned to allow growing cannabis outdoors, Aurora Cannabis CEO Terry Booth was not supportive of the idea. A Cantech letter stated that he believed marijuana demands a level of quality that can only be achieved in a controlled indoor setting.
However, in a later interview with BNN Bloomberg, Booth said, “We’ve always supported indoor grow, outdoor grow, home grow—however you grow cannabis, do your very best to do it.” He added, “And really, that’s what drove us to build these wonderful facilities that have high yield with low risk and low cost and have high quality.”
Why growing cannabis outdoor might not be a good idea
While the benefits of growing marijuana sound fair, some believe it has disadvantages as well. Last year when Canada allowed growing cannabis outdoors, many industry representatives campaigned against outdoor cultivation. They noted that growing weed outdoors could result in more theft. Additionally, it could lead to a higher risk of cross-pollination and contamination, affecting crop quality.
Another concern is the change in the potency level of cannabis. Many believe the potency level of weed has increased over the years, partly due to growing conditions.
The current level of THC (or tetrahydrocannabinol) content found in cannabis, which causes the psychoactive effect, is much higher than its earlier content. The National Center for Biotechnology Information study, “Changes in Cannabis Potency over the Last Two Decades,” showed that THC potency rose 8% from 1995 to 2014.
How growing conditions affect the potency level is still a question. A lack of quality research makes it challenging to determine the actual cause. This was one of the main concerns of White House advisors when they called for more cannabis research to be conducted. White House officials and President Trump want to know about the pros and cons of marijuana before the decision reaches the federal level.
Aurora Cannabis and peers’ fundamentals
Aurora Cannabis stock has suffered this year, as its fourth-quarter results disappointed investors as it missed revenue guidance and analysts’ estimates. Although it reported negative EBITDA, the company is still positive about fiscal 2020.
We’ll have to wait and see how outdoor cultivation could help boost Aurora Cannabis’ profitability and its stock performance. The stock is down 6.8% YTD, and it’s down 16% in September.
Meanwhile, peer Canopy Growth (CGC) (WEED) is also planning expansion in the edibles market. The company plans to launch cannabis-infused beverages along with Constellation Brands (STZ). Canopy also reported disappointing Q1 2020 results. Canopy Growth stock is up 1% in September.
HEXO (HEXO) is also planning expansion through a partnership with Molson Coors to launch CBD-infused beverages through a newly formed joint venture company called Truss. Hexo stock is up 4.2% in September.
What else is happening in the cannabis industry?
The cannabis industry got good news last week, as the US House of Representatives passed the SAFE (Secure and Fair Enforcement) Banking Act of 2019. This bill allows banks and financial institutions to help cannabis companies with funds for expansion.
Cannabis 2.0 occurs next month, which would legalize edibles, vapes, and concentrates in Canada. In the US, Wisconsin, Pennsylvania, and South Dakota are stepping up to legalize weed in the US. In our view, this trend is good for cannabis players that wish to expand in the US.
You can read how Aurora Cannabis is getting ready for edibles expansion in Cannabis 2.0: Aurora Cannabis Gears Up for Edibles Market. To learn more about the cannabis industry, please check out our sector updates.