In early 2017, the German parliament has voted to legalize the use of medical marijuana. This week, the German Federal Institute for Drugs and Medical Devices took another big step toward medical marijuana legalization.
The agency has selected Aurora Cannabis (ACB), Aphria (APHA) and Demecan, a German-based cannabis company, as the winners in the public tender to receive a license for the domestic cultivation of medical cannabis in Germany. Aurora and Aphria have been granted 10 (5 each) of the 13 lots, with Denecan receiving the remainder. Each lot permits production of 200kg per year, although the decision is preliminary and may change pending appeals by other applicants.
The selection process was based on the submission of a concept for domestic cannabis production, delivery and pricing. Aurora’s concept, judged on criteria such as facility design, quality, security and logistics, received the highest ranking out of all concepts submitted.
In reaction, Jefferies analyst Owen Bennett reiterated a Buy rating on ACB stock, with a $12 price target, which represents over 30% where from where the stock is currently trading. (To watch Bennett’s track record, click here)
Bennett commented, “The cultivation amounts permitted are relatively small compared to demand, and Canadian/Dutch imports are likely to continue to supply the majority of patients. Despite this, there are a number of reasons beyond the immediate sales opportunity why this decision is a positive for Aurora:
- With Germany currently and projected to be the largest market outside of North America, it is seen by many as the bellwether for international operations, so success in this market is likely to be taken well.
- With this decision coming from a competitive bid and decision made by Germany’s government, it goes some way to validating the quality of Aurora’s medical operations, which will put it in good stead when attempting to enter other medical markets. To this, it has already been the first LP to supply medical cannabis to countries such as Italy and Luxembourg.
- Having domestic cultivation operations places Aurora ahead of competitors when it comes to the risk of German regulations becoming more protectionist, or choosing to reduce/stop imports from other countries.”
All in all, Aurora remains a top cannabis stock pick among Wall Street analysts. In just three months, ACB has attracted 6 ‘buy’ and 2 ‘hold’ ratings. However, the stock’s near-to-medium appreciation is likely to be limited as the average 12-month price target currently stands at $9.15.
To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.
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