Aurora Cannabis (ACB) shares shot 14% higher on Wednesday after the Canadian pot producer announced that it has appointed Nelson Peltz, CEO and Founding Partner of multi-billion dollar investment management firm Trian Fund Management to be a “Strategic Advisor” to Aurora.
Helping to make Aurora shares run was a near-simultaneous endorsement of the stock by GMP Securities analyst Martin Landry, which explained the significance of Peltz’s involvement with Aurora — and why, in Landry’s view, this single new hire makes Aurora Cannabis worth $15 a share — more than 50% above what GMP used to think the stock was worth.
You see, as it turns out, this news is about more than just Mr. Peltz, proper. It’s about Trian, and the fact that through Trian, Nelson Peltz has developed relationships with a whole host of consumer packaged goods companies (that Aurora might also want to partner with, providing marijuana derivatives for incorporation into other products) — companies like: PepsiCo, Dr Pepper Snapple, Procter & Gamble, Kraft Foods, Heinz, and Mondelez, “among others.” It’s in Mr. Peltz’s, and Trian’s relationships with key decision makers at these companies that have Landry thinking this could be a transformative deal for Aurora.
Beyond Peltz, though, Landry sees other reasons to become incrementally more optimistic about Aurora.
For example, the analyst notes that Aurora faced production issues as recently as this past fall. But last month, Health Canada licensed Aurora’s “Aurora Sky” and Bradford” facilities to begin producing cannabis, growing Aurora’s annual production capacity to 150 tons per annum in the near term. Landry estimates that operated at capacity, Aurora will soon be capable of generating about $1 billion in annual sales and earning roughly $250 million per annum in earnings before interest, taxes, depreciation, and amortization (EBITDA) — not quite the 50% EBITDA margin that Aurora is targeting, but that just means there’s room for improvement. And in any case, even 25% EBITDA margins will be a big improvement over the negative 154% EBITDA margin Aurora produced in 2018.
It is worth noting, however, that Landry’s estimates for this year are unchanged. In 2019, the analyst is forecasting sales of $324.5 million and adjusted EBITDA of negative $99 million. It’s only next year, in 2020, that the analyst believes we will begin to see positive EBITDA numbers coming out of Aurora –positive $99 million.
In other news, Landry echoed Jefferies’ optimistic note (which we discussed earlier this week), regarding Aurora’s announced deal to begin selling cannabis oil into the German medical market. As GMP notes, Aurora has obtained EU certification of Good Manufacturing Practice for two facilities in the EU already (Mountain and Markham), and is now in a position to produce a total of 12 metric tons of cannabis oil annually for the European market. And elsewhere in Europe, GMP notes that Aurora also has expanded into Portugal, where it recently acquired a 51% stake in Gaia Pharm Lda, which has applied for a Portuguese production license.
And that, folks, is why Landry upgraded Aurora Cannabis stock to “buy” on Wednesday.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.