Licensed marijuana producers to meet only 0.6% of recreational demand
Aurora Cannabis Inc. (CSE: ACB | OTCQB: ACBFF) announced on November 30, 2015 that its wholly-owned subsidiary Aurora Enterprises Inc has received approval from Health Canada to sell its marijuana products to licensed medical patients.
This exciting news is the result of 2 years of relentless travail to meet Health Canada exacting regulated requirements.
With this accreditation Aurora joins the ranks of a 26-strong elite of approved medical marijuana sellers. For clarity, thus far getting a license to grow medical marijuana in Canada has been a Darwinian exercise because of the rigor imposed by Health Canada on the licensing process. And so I tip my hat to Aurora’s management for their perseverance and the company’s shareholders for their patience.
With a 55,200 square feet purpose-built $10.5 million growth facility on farmland in the Alberta foothills where cattle farming and oil drilling comingle, the company plans to produce 5400 kg annually. A great deal of thought has been given to air quality, automating nutrient delivery and light delivery systems to precisely accommodate different growth stages.
Growing pot is easy but growing medical marijuana is infinitely more complicated and requires technological savvy.
In September 2015 I visited Aurora’s facility north east of Calgary to ascertain for myself that it offers significant potential for the production of high quality marijuana. I am pleased to report that Aurora has succeeded in proving two significant types of innovation:
- The design of a novel HVAC system to permit the handling of the immense heat emission and airborne evapotranspiration moisture, and
- Developed cultural practices to grow high quality medicine while targeting an increase plant production from 1 lb of buds per plant to 2-3 lbs of buds per plant.
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Notwithstanding that I’m sworn to secrecy about the disclosure of the technology, I enthusiastically confirm that Aurora has created a significant technological platform for the industrial growth of medical marijuana.
The fact that Aurora has secured its license to sell medical marijuana from Health Canada further corroborates the effectiveness of Aurora’s technology and cultural practices at growing material that meets exacting standards for microbial and chemical contaminants.
Aurora’s next challenge will be to gain customers. Until recently I would have been cautious about how Aurora could secure its client base under the MMPR rules that exclude marketing by producers. However, the newly elected Liberal government has recently reinforced its commitment to legalize recreational marijuana, and I speculate the government will use Health Canada’s licensed growers as a path to broadening access to marijuana. If such is the case, then we can look forward to a significant market explosion, which should benefit Aurora.
With a move to recreational use the sector can anticipate staggering growth. In Q1 2015 Health Canada reported the production of 2,212 kg of medical marijuana by licensed producers. The current sales are 1,371 kg per quarter with an average daily consumption rate of 1.1 g per client—for clarity Health Canada compiled the daily prescription rates to the registered licensed users.
Assuming that 10% of Canadians would use recreational and medical marijuana at the same rate, the demand would increase to 356,400 kg/quarter or 1,425,600 kg per annum. In contrast the reported production in Q1 2015 was 2,212 kg, which is equivalent to 8,848 kg on an annualized basis. Therefore using the 10% user rate and 1.1 gram per day assumptions, the current production rate (but not capacity) can only meet 0.62% of the potential Canadian demand.
Let’s assume that this material is sold at $5.00 per gram. Then the market is worth $7.128 B per annum with direct tax benefits of $499 M per annum to the federal government alone (7%).
These figures do not even include international potential.
The current strong system of regulation and quality control would make Canadian product credible on international markets. A clear legal framework for security and distribution would give foreign investors a safe place to invest without worrying about the gaps between federal and state rules that are so complicating the marijuana industry in the United States.
Some speculate that Canada’s marijuana might be a suitable replicate the French appellation controlée system for wines by emphasizing local hybrids produced by Health Canada accredited growers.
Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>