Aurora Cannabis (ACB): Investors Seem to Be Missing the Latin American Opportunity

By Gary Bourgeault

Much of the focus on Aurora Cannabis (ACB) is its world class facilities in Canada, its market-leading international presence, and its focus on higher-margin medical cannabis.

In regard to the international reach of the company, which now has climbed to 24 countries, the market has largely looked at the potential it has in Europe, somewhat ignoring or in some cases, even unaware of the potential the Latin American market has for the company over the long term, which represents a gigantic 650 million people.

To that end Aurora acquired Uruguay-based ICC Labs as a foothold into the Latin American market, making the announcement in September 2018, which initially gave the company a boost, but since then hasn't attracted much attention. Even in its recent earnings report the company didn't mention it.

The primary reason I think the market has ignored it is because the European market will have more of an impact on the company in the near term. It's also why I believe Aurora Cannabis management hasn't been talking about it much, which has resulted in little media coverage.

Latin American cannabis

Aurora paid C$290 million for ICC Labs, and in my view it was well worth it; although I believe the Latin American market will take more time to develop than some of its European counterparts, even though the continent is more liberal in its outlook concerning cannabis than other regions of the world.

Part of that comes from the need to build up various aspects of infrastructure associated with the industry, as well as boost the amount of production capacity to meet demand in the market, along with competing in other markets.

In 2018 the Latin American market was valued at $125 million, and is projected to grow to $12.7 billion by 2028. I think it could be far larger than that.

Medical cannabis has been considered to be the largest segment of that market, but the rapid increase in production capacity in Columbia will probably change the product mix going forward, as it boosts low-cost  recreational pot exports over time.

ICC Labs

Uruguay was the first country in the world to legalize recreational pot, and at the time Aurora acquired ICC Labs, it accounted for 70 percent of that market in the country.

Also included with ICC Labs was licenses it held in Columbia for the production of medical cannabis. Aurora can also grow cannabidiol rich hemp for the purpose of developing CBD-based products. This should allow Aurora to produce at a low-cost, potentially winning more share in a market that generates wider margins and better earnings.

As for production capacity, ICC Labs has the capacity to process up to 150,000 kilograms of CBD annually.

Including a 124,000 greenhouse in Colombia and another 1 million sq. ft. facility in Uruguay, it'll have the potential to increase production capacity by another 100,000 kilograms a year.

Taking into account all its existing capacity and facilities under construction, the company could produce up to 450,000 kilograms annually when fully operational. That's a little under 1 million pounds a year.

Last, the company has an agreement in place with Mexico to export cannabidiol products. That represents a market of about 125 million.

Conclusion

Even though ICC Labs has extraordinary potential, I think that it's going to move forward at an incremental pace in contrast to other markets Aurora Cannabis competes in.