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Australis Capital Inc. Is Deploying A Unique Capital-Light Investment Strategy To Capitalize On The Booming U.S. Cannabis Sector

Australis Capital Inc. Is Deploying A Unique Capital-Light Investment Strategy To Capitalize On The Booming U.S. Cannabis Sector

The cannabis industry currently counts over 1,000 publicly listed companies. Consequently, it takes a lot to rise above the noise and stand out. Australis, in our opinion, is one of those companies that is uniquely differentiated, well led and poised to make an impact on the U.S. cannabis industry through a very well differentiated capital-light strategic model. We believe that while Australis shares have performed strongly since a new leadership team took over, the Company’s execution and outlook merit a closer look as we believe there is very considerable upside in this stock.

Australis – poised to capitalize on the U.S. cannabis opportunity

In 2018, Aurora Cannabis Inc. (ACB.TO) (ACB) spun off Australis Capital Inc. (CSE: AUSA) (OTC: AUSAF) as a standalone public company. The rationale for the spinoff was related to the Toronto Stock Exchange’s (TSX) regulations that did not permit TSX listed companies to be engaged in plant touching cannabis operations in the United States (US).

In November 2020, shareholders overwhelmingly voted in favor of replacing the entire board. Since the new leadership team took over, considerable progress has been made towards turning Australis into the company it was always meant to be, a capital-light, multi-state cannabis operator in the U.S. Australis has reported several significant developments that have reignited interest in the stock.

Growth Ahead in US Cannabis Market David can help on this section.

The U.S. legal cannabis sector, already by far the largest in the world, is poised for further tremendous growth. In 2020, Americans spent $18.3 billion on cannabis, up by a staggering $7.6 billion over the prior year (source: leafly.com). This momentum is anticipated to continue, with Cowen & Company projecting around $40 billion in sales by 2025. Adult use cannabis is currently legalized in 15 states plus Washington, D.C., while 36 states have legalized medical cannabis. The November 2020 elections saw five states voting for ballot initiatives to legalize cannabis and the expectation is that the 2022 elections will see a further increase. Market growth is driven by three factors: new states legalizing cannabis, individual consumers increasing their spending on cannabis and new consumers entering the legal market. The latter group includes people migrating from the black to the legal market, but also counts a growing number of new consumers. One demographic driving growth was the so-called Generation Z (generally considered as those born in the early to mid 1990s to the early 2010s). D data firm, Headset, found that from 2019 to 2020, sales to Generation Z consumers increased by 127%, compared to 5% for boomers.

With the Democrats taking the Presidency, the House and the Senate, we believe that important strides towards legalization at the Federal level will be made, which we expect will create growth well beyond the current predictions.

In this market environment with many growth catalysts, the opportunity is immense, and we believe that Australis with its unique model and Tier One management team, is positioned exceptionally well to capitalize on this opportunity and realize outsized growth. 

Australis Thesis

From acquiring strategic assets to appointing high-profile executives with a proven track record of value creation in the cannabis industry, Australis has been executing on a capital-light, multi-state growth strategy. We believe the opportunity is flying under the radar. Going forward, we believe Australis is well positioned for growth and are excited about the opportunity for the following reasons:

  1. The additions to the management team that will be effective upon closing of the ALPS transaction are expected to play a key role in the growth of the business and we are favorable on the track record that is associated with these appointments
  2. Australis is highly differentiated from its peers by being very agile with an asset light model that allows it to seize new opportunities quickly and efficiently
  3. The company has announced two acquisitions that will lead to its first significant revenues and positive cash flow
  4. The company is rapidly capitalizing a number of other organic and inorganic growth catalysts with significant upside
  5. Australis is levered to several high-growth newer markets throughout the U.S.
  6. The company has an attractive business model and with favorable synergies between its subsidiaries
  7. The company will be exceptionally well positioned once cannabis becomes federally legal by having a much more efficient capital asset structure without an asset heavy model
  8. At current levels, we believe Australis has a compelling valuation and a favorable risk-reward profile

Announced Significant Additions to the Leadership Team

When we analyze any cannabis company, we initially conduct research on the management team and consider this to be the most important aspect of any cannabis business. During the last quarter, Australis has announced several significant appointments that we rate highly favorable.

We believe the intended appointment of Terry Booth as Chief Executive Officer (CEO) is a transformational development for Australis. Previously, Terry was the CEO and Founder of Aurora Cannabis and is one of the best-known names in the cannabis industry. While serving as CEO of Aurora Cannabis, Terry built a reputation as an executive who is able to lead and motivate teams to execute at a pace much more rapid than we are used to from other companies in the space. He is a consummate company builder who has generated billions in shareholder value. We believe he adds important expertise to the business and are favorable on his appointment.

In late 2020, Australis announced the appointment of Jon Paul as Chief Financial Officer (CFO). Previously, he was CFO at PLUS Products and has approximately 40 years of senior financial experience with both public and private companies. During this time, Jon built a strong track record in leading hypergrowth in fast-paced businesses including the cannabis, consumer goods, wireless telecom and generic pharmaceutical industries. While at PLUS, Jon was a key member of the team that was responsible for a 15-fold increase in revenues. Jon earned an MBA from the Harvard Business School and we are favorable on the experience that he adds to the team.

Interim CEO Dr. Duke Fu, who took the helm in November, is expected to take the role of COO upon Mr. Booth becoming CEO. Dr. Fu, who was President of Medmen in 2014-2015, will focus on driving organic growth, showing how Australis takes a strong team-based approach to creating value. As CEO of GT, which is being acquired, he has a strong track record in developing high-end cannabis designer products. The wisdom of this strategy is clear, considering GT has a 52% penetration rate of the Nevada retail market, limited only by its production capacity. GT products sell out consistently. This, we believe, bodes well for when GT products will be introduced in new jurisdictions through Australis’s capital light expansion model. Dr. Fu has shown a strong ability to deliver value, and we are very bullish on his capabilities to drive strong organic value growth.

Strategic Acquisitions are Expected to be a Major Growth Driver

Australis recently issued a corporate update that highlighted the acquisition of Green Therapeutics, and we are favorable on the growth prospects that are associated with it. The company reported that Green Therapeutics saw a spike in demand for cannabis products in December and we are bullish on this trend. When compared to the same period in 2019, revenue increased by 47% and we will monitor how the operator continues to grow

We consider the December sales data to be significant since GT’s business was negatively impacted by limited production capacity and the COVID pandemic. The growth was fueled by GT’s ability to source more raw material which had attractive economics. Demand for the brand’s cannabis products remains elevated and the company reported that it has been quickly selling out of product.

Like the ALPS transaction, completion of the GT transaction is anticipated to be accretive at the EBITDA level. Furthermore, the Company is in the process of selling a plot of land it is not utilizing, which should generate approximately US$1.95 million upon closing.

We believe that ALPS represents an attractive acquisition target and are favorable on the track record that is associated with the company’s operations and revenue model, which also include a unique recurring revenue based compliance, maintenance and service offering, APIS.

ALPS constructed some of the largest state-of-the-art cannabis facilities on the planet, and we expect the asset to prove to be a major revenue generator for the business. We also expect Australis to find significant synergies from the acquisition as it continues to execute on its growth strategy and believe the market is discounting this aspect of the story.

The projects announced vary in scale and complexity, showing ALPS scale-agnostic approach and resonance with the industry. Trends such as local production, production in unfavorable climates, high-quality and exceptionally low operating costs resonate strongly with current industry dynamics and we believe ALPS is very well positioned to benefit from these dynamics and record strong growth.

ALPS’ ability to execute on the traditional horticulture sector will create a secure and diversified de-risked revenue stream for Australis and we are bullish on this aspect of the story. We expect that the profitable nature of these operations will generate significant cash flow that will support Australis’ cannabis expansion across multiple states.

About Australis Capital

Australis is highly levered to strategic markets in the U.S. The company is executing on a multi-faceted growth strategy and we are favorable on the direction the new management team is executing on. From making strategic investments and acquisitions, the company has enhanced its growth profile and we are bullish on the Company’s unique capital-light expansion strategy.

Australis’ business and assets include investments in Cocoon, Body and Mind Inc., Quality Green, and land assets in Washington and Michigan. The company recently announced the proposed acquisition of Green Therapeutics LLC, a high-end U.S. multi-state-operator (MSO) with operations in Nevada, Missouri, and Oklahoma. Green Therapeutics owns three popular brands, GT Flowers, Tsunami and Provisions. The GT brands are all characterized as high-end and sell out consistently through GT’s 52% penetration of the Nevada retail market. The assets in Missouri and Oklahoma are close to being developed and the Company anticipates operationalizing these in the coming quarters.

Australis also recently announced the acquisition of a 51% interest in ALPS (with a compellingly priced option to acquire the remaining 49%), which includes a leading cannabis brand, Mr. Natural. We expect the acquisition of ALPS to play a key role in the growth of the business and consider it to be a core pillar of the business.

ALPS is a leading design, construction management, commissioning and post commissioning consultancy company for horticultural crops (i.e. cannabis, fruits, vegetables, mushrooms, and algae). ALPS has been executing rapidly on various global opportunities and is expected to be the gateway for Australis to secure low-cost take off agreements in multiple jurisdictions for Australis to scale up its brands across the U.S.

Through its core business, ALPS brings considerable revenue to Australis, with numerous catalysts identified for rapid growth. Its standing within the cannabis industry as the brand of choice for the delivery of facilities that produce high-end cannabis at very low cost is key to both ALPS’ growth prospects in this sector, and the execution of the capital-light strategy Australis is implementing. In the past month, ALPS has announced four new projects with a total revenue value in excess of $5 million. Furthermore, ALPS has a significant pipeline of new potential clients and we anticipate a consistently strong and profitable growth profile.

We are favorable on the potential synergies that are associated with ALPS and believe that the market is discounting this aspect of the story.

The company expects to complete these acquisitions shortly, and we believe completion will prove to be a significant catalyst for the stock.

A Differentiated Growth Story

Through these acquisitions and the strategy execution it enables, Australis represents a highly differentiated growth opportunity. We believe the management team’s ability to execute on this strategy leaves the business well positioned for growth over the long-term and believe that our readers need to be aware of this.

An Opportunity that is Trading at a Discount

During the last quarter, Australis has reported several transformational developments and we are favorable on how the business has advanced. At current levels, the company is trading at a considerable discount to its peers and we believe that it has a compelling valuation.

We believe Australis has a favorable risk-reward profile and significant potential catalysts for growth. As the company continues to execute on key growth projects, we expect to see analysts become more bullish on the opportunity.

Going forward, we will be highly focused on how Australis is able to integrate the assets that it has acquired and consider this to be an important aspect of the story. We are favorable on the recent additions to the management team and expect these appointments to play an important role in how the business executes on its strategy going forward, the start is there, and it has been strong. We believe that the market is discounting the growth potential that is associated with the company and this is an opportunity to be aware of.

Pursuant to an agreement between StoneBridge Partners LLC and Australis Capital Inc. we have been hired for a period of 180 days beginning February 8, 2020 and ending August 8, 2020 to publicly disseminate information about (AUSA) including on the Website and other media including Facebook and Twitter. We are being paid $6,000 per month (AUSA) for or were paid “ZERO” shares of unrestricted or restricted common shares. We plan to sell the “ZERO” shares of (AUSA) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (AUSA) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.

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Published at Wed, 17 Feb 2021 12:45:10 +0000

California State Senator Introduces Bill to Expand Resources for Cannabis Market

California State Senator Introduces Bill to Expand Resources for Cannabis Market

Editor’s Note: There is no denying that the cannabis industry is rapidly growing and evolving, leaving many in the industry to have to continuously adapt to the ever-changing landscape.  I interviewed three professionals with a well-built background in cannabis, who share their experiences, lessons learned, insights and tips on working in the cannabis industry.

Tips from Crystal Oliver, executive director for the Washington Sungrowers Industry Association (WSIA) and co-founder and former owner of Washington’s Finest Cannabis. Oliver shares her personal experiences and lessons learned as a small business owner in the cannabis industry with Cannabis Business Times.

RELATED: 6 Cannabis Business Lessons We Learned Too Late

I wish I knew..

1. The value of hiring a professional lobbyist compared to the price you pay for bad policy.

The saying, “If you’re not at the table, you’re on the menu,” comes to mind when I reflect on the evolution of cannabis policy in Washington. Early on, other farmers and I focused on community organizing and advocating for ourselves. What we lacked in experience, we made up for in passion, but this did not always translate to policy wins. We often knew why a policy proposal would hurt our businesses but getting legislators and regulators to listen to us and modify their approach was incredibly challenging.

Washington’s independent cannabis farmers suffered through several legislative sessions, where bills passed damaged our business prospects before the WISA held its first Sun Cup competition/fundraiser in 2018 and hired contract lobbyist Bryan McConaughy. The difference in having a professional, experienced lobbyist made our ability to block bad bills from becoming law and favorably amend other bills cannot be overstated.

Had I fully understood how impactful being represented by a professional would be, I would have done whatever it took to fund a lobbyist immediately. I would have considered it a cost of doing business rather than a nice-to-have. As an emerging industry, the winners and losers are often decided in government agency meeting rooms and state capitals. You must be effectively represented in those spaces if you want to secure your future.

2. The challenges of living without access to affordable and traditional financing.

When I first started my farm, I knew I could not access small business startup funding from my bank. So, I chose to use my savings and income from my corporate day job. I later left my day job to focus on cannabis farming full-time, not realizing that relying solely on cannabis-related income would render me ineligible to secure any loan from a traditional funding source. It was a little shocking when I discovered that my credit union would not issue me a loan to purchase a new vehicle despite having good credit, low debt and sufficient income. As a result, I have had to save and pay cash for vehicles purchased since becoming a cannabis farmer. In hindsight, I should have worked harder to maintain a non-cannabis-related income stream.

3. The reluctance of policymakers to address inequities in the marketplace.

For example, allowing direct farm sales would better distribute the industry’s economic benefits throughout the supply chain by empowering small independent craft producers. Still, policymakers hesitate to distribute power away from those who already hold it. On more than one occasion, I have been advised that I need to get buy-in from those who benefit from the existing inequities in the marketplace to secure policy reform.

It is impossible to reach those who benefit most from an unfair system to agree to changes that would help others. In Washington, we have been fighting for direct farm sales for several years now https://www.cannabisbusinesstimes.com/article/washington-cannabis-growers-direct-sales-customers/> without much progress due to our legislators’ fear of disrupting the status quo. I naively believed that legislators would place greater value on fairness and thought we would secure farm-direct sales after a few years. I remain hopeful that direct farm emphasis on equity for BIPOC communities may lead to reassessments of our marketplaces’ overall structure, which centermost of the market power in the hands of a few well-capitalized interests.

Courtesy of Crystal Oliver

Oliver and her daughter

4. The difficulties of owning and operating a small business when your children are not permitted to step foot on the premises.

I was pregnant when I planted my first state-legal cannabis plant in 2014, and my daughter was born one month before our first state-legal harvest. When we decided to have a child shortly after applying for licensure, I envisioned tending my cannabis field with my baby in a sling or back carrier like the other organic farmers I knew. I understood that farming would be hard work and knew that working where I lived with my family in rural Washington would be a dream come true. Unfortunately, the rules surrounding marijuana cultivation in Washington prohibited individuals under 21 from setting foot on the licensed premises. My children were not allowed to enter the building or the fenced-in area of our property, where our cannabis business was located. Over the years, this created many challenges for our family. My husband and I had to alternate who was working so that one of us could supervise the children, causing long days for us both. Our children grew to resent our business because it took up so much of our time and separated us from them.

It was not until the COVID-19 pandemic shut down schools that we could convince the Washington Liquor and Cannabis Board (WSLCB) to grant leniency and allow children and grandchildren of licensees under 16 to be in the licensed premises, as they did not engage in any work. It has been a blessing for farmers to have their children allowed on site, but it is a painful reminder of the time we have missed out on over the last six-plus years. I regret not considering how impactful it would be not to bring my children to work with me as a small business owner.

Tips from David Holmes, founder and CEO of Clade9. Holmes entered the cannabis industry nearly 20 years ago, back when cannabis was just starting to become medically legal in a few states. His self-starter and self-educating attitude helped guide him; however, he tells Cannabis Business Times that there are a few things he wishes he would have done differently before entering the ever-changing cannabis industry.

I wish I knew…

1. The advantage of having an education in business.

I am a trained mathematician, as I have a master’s degree in math, but I never took traditional business courses. Others have mentored in business and learned things, but I kind of had to learn everything on my own. I wish I had more support; that would have been super powerful. Especially having been in cannabis in the late ’90s, I have never really had a huge advantage having both skill sets; learning how to grow cannabis and have business training. 

I had to learn over the years, and I have picked up a lot. The first time I had to formally negotiate a contract to cannabis entrepreneurs to negotiate a business deal was when I thought, “I wish I were trained formally in business.” I think everyone learns by doing it but having said that, having formal training or maybe just being in another business industry would have been very valuable.

Courtesy of David Holmes

Holmes

2. The value of having a background in agriculture as a cultivator.   

Being a cultivator, I wish I would have gone to school. I am glad I got a degree in math, there is no question about it, but I also wish I would have studied agriculture, precisely controlled environment agriculture, as my focus is cultivation breeding. It took me many years to learn controlled environment agriculture in Canada, without any formal training, so I self-taught.

For example, I did not understand all the variables that I needed to look at to grow consistent crop quality, like thinking to myself, “Oh, shoot, next time I should look at humidity, I wasn’t looking at that the first time.” A lot of failures led to light bulbs going off, saying, “Hey, I need to know more about that because that’s what hurt me last time.” Doing that for over 15 to 20 years, you learn a lot, but if I had formal training, I would have thought of those things all together right away instead of learning over time.

3. The benefit of entering the industry with a different mindset.

I wish I would have known cannabis was going to be an industry because when I got into it, it really was not an industry. If I had known it would be where it is, I would have approached it a lot differently. It was medical in California, but it was a total gray area, and it stayed that way until 2017 or 2018. Most cannabis entrepreneurs in California have been in the industry for a lot longer than other states, especially on the east coast. In a lot of their minds, they are probably thinking, “I wish I would’ve known this was going to be this big of a deal nearly ten years ago.”

Tips from Loren Picard, CEO of High Desert Flower Inc. in Oregon. Picard started as a financial and corporate operational consultant in the cannabis industry nearly four years ago. Within a couple of months, he was asked to be his client firm’s CEO. He shares what he is learned throughout his last four years in the industry with Cannabis Business Times. 

RELATED: 6 More Lessons We Learned From Our Cannabis Business

I wish I knew…

1. How underprepared states were for cannabis legalization.

I have been around a little over four years in the industry, starting in late 2016, with other states having legalized before and since, and I did not have a long runway to get up to speed. It takes a year or so after each state legalizes to implement its enabling regulations. That seems to be plenty of time for states to learn from other states’ successes and failures and should lead to some semblance of consistency across state jurisdictions. Unfortunately, the result has been a patchwork of rules and regulations within and between the states resulting in most states woefully underprepared when their respective licensing processes began. We had an operation in California, which we sold, and then grew a vertically integrated operation in Oregon, and how the two states’ regulators looked at the cannabis world was completely different.

Courtesy of Loren Picard

Picard

2. The difference between the economics of capped and un-capped states.

Oregon started as an uncapped state, but in June 2018 they just stopped taking applications, and it suddenly became a capped state. In hindsight, I should have thought about the whole idea of licensing as a way a firm could build value before June 2018. You could have created a lot of value by getting control of one small location (leased or purchased) and applying for multiple licenses and just put the licenses into operation when it made sense; some may not have been put into operation at that location. You would then have the flexibility to move the licenses to an optimum location with or without bringing in partners.

Obviously, there are nuances to this strategy that need to be thought through to make it worthwhile, but it was a viable long-term strategy. That would be a strategy I would do today in an uncapped state if the license costs are reasonable. If they are a hundred thousand apiece, no, but if they are a couple of grand, it could be worth it. Even if a state never caps their license issuances, there are only so many good qualified real estate locations in any state for a cannabis business. Eventually, licenses will be capped by a lack of suitable sites.

3. How little economic taxing authorities understand.

The whole idea that you cannot put up to 50% combined tax rates, including at the local level, on top of cannabis retail prices and expect to make any movement on shrinking the [illicit] market, I think, was a mistake. I think there should have been a long ramp-up of minimal taxes to pay the regulatory and enforcement agency’s overhead on top of the already collected application and license issuance fees; then start ramping up over time as the black market shrank in size.

Published at Tue, 16 Feb 2021 22:00:00 +0000

Colorado Has Sold $10 Billion Worth Of Legal Weed Since 2014

Colorado Has Sold $10 Billion Worth Of Legal Weed Since 2014

Colorado cannabis retailers have sold more than $10 billion worth of legal pot since recreational marijuana became legal in the state in 2014, with more than $2 billion of that total coming in 2020 alone. Cannabis sales figures for 2020, a year when many business sectors suffered severe negative impacts from the coronavirus pandemic, were released by the Colorado Department of Revenue on Tuesday.

While many bars, restaurants, entertainment venues, and other businesses were forced to close or curtail operations during the outbreak, Colorado designated cannabis retailers and producers as essential businesses in March of last year. Cannabis sales totaled $2.19 billion in the state in 2020, up from $1.75 billion the year before.

“It’s good that in this really challenging year at least some of our industries are doing well,” Colorado Gov. Jared Polis said last week in an interview with the Denver Post. “It also shows that Colorado’s marijuana industry continues to lead the nation in excellence and innovation with additional measures like delivery.”

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Published at Fri, 12 Feb 2021 15:40:15 +0000

Aurora Cannabis Announces Fiscal 2021 Second Quarter Results

Aurora Cannabis Announces Fiscal 2021 Second Quarter Results

Aurora Cannabis Inc. (NYSE: ACB) (TSX: ACB), the Canadian company defining the future of cannabinoids worldwide, today announced its financial and operational results for the second quarter of fiscal 2021 ended December 31, 2020.

Aurora Cannabis Inc. Logo (CNW Group/Aurora Cannabis Inc.)

“Aurora had an excellent second quarter, and I’m pleased that we’re advancing nicely against the plan we laid out in September of 2020,” stated Miguel Martin, Chief Executive Officer of Aurora Cannabis. “For the period, our core revenue strength in medical and consumer was complemented by initial rollouts in vape products and concentrates. Combined, these elements are part of the proven, regulated CPG strategy we’ve adopted.  Adjusted EBITDA for the quarter, while vastly improved year over year, was impacted by several decisions that we believe will clear a path for our premium product focus and more variable cost model. We are confident that this will give Aurora maximum flexibility and position the organization to drive significant cashflow in the coming quarters.”

“To further support this strategy, we have also focused on improving our cash burn, margins and overall financial flexibility.  To that point, our year over year cash use has decreased by 74% to $70.5 million, our normalized margins remain solid particularly in medical, and our recently amended credit facility gives Aurora much improved optionality as opportunities arise.  Combined with $565 million in cash on our balance sheet today, Aurora will continue to be a long-term player in the global cannabinoid market and increasingly positioned to deliver for shareholders over the long run.”

Second Quarter 2021 Highlights
(Unless otherwise stated, comparisons are made between fiscal Q2 2021 and Q2 2020 results and are in Canadian dollars)

Q2 2021 total and cannabis net revenue1 before provisions was $70.3 million, an 11% increase over Q2 2020 and 2.5% sequentially. After accounting for return and price provisions, Q2 2021 total cannabis net revenue was $67.7 million, a 28% increase in cannabis net revenue1 over fiscal Q2 of the prior year.

Adjusted gross margin before fair value adjustments on cannabis net revenue1 was 42% in Q2 2021, versus 48% in Q2 2020. The decrease is due to the purposeful reduction in production levels at Aurora Sky resulting in an increase in cash cost of sales due to the under-utilization of capacity. Also impacting adjusted gross margin was a $1.8 million increase in actual net returns, price adjustments and provisions primarily relating to company-initiated product returns meant to open channels to newer, higher-potency flower that Aurora is now producing.  Normalizing for these impacts, adjusted gross margin was 52%.

_____________________

1 These terms are non-GAAP measures, see “Non-GAAP Measures” below.

Adjusted EBITDA1 loss was $16.8 million in Q2 2021, which includes termination and restructuring costs of $2.9 million. Excluding restructuring costs and product return provisions, the Company’s Adjusted EBITDA loss is $12.1 million.

Consumer cannabis:

  • Consumer cannabis net revenue1 was $28.6 million ($31.1 million excluding provisions), a 25% increase from the prior year. Additionally, Aurora’s consumer cannabis derivative products net revenue increased by $1.7 million sequentially, driven by product launches in vapes, edibles and concentrates.
  • Adjusted gross margin before fair value adjustments on consumer cannabis net revenue1 was 27% in Q2 2021 versus 33% in the prior year period, primarily driven by a $3.3 million increase in cost of sales due to under-utilized capacity as a result of the scaling back production at Aurora Sky, which is expected to partially reverse in subsequent quarters and sales of our lower margin Daily Special value brand which was not present in the prior comparative period.

Medical cannabis:

  • Medical cannabis net revenue1 was $38.9 million ($39 million excluding provisions), a 42% increase from the prior year period. The increase was primarily attributable to a continued strong performance in both the international and Canadian medical businesses. International medical sales grew by 562% over the prior year comparative period.
  • Adjusted gross margin before fair value adjustments on medical cannabis net revenue1 was 56% in Q2 2021 versus 59% in the prior year and prior quarter, primarily driven by the increase in cost of sales due to the under-utilized capacity as a result of the scaling back production at Aurora Sky.

Selling, General and Administrative (“SG&A”) and Adjusted EBITDA:

  • SG&A, including Research and Development (“R&D”), was $44.4 million in Q2 2021, down $49.7 million or 53% from the prior year period as a result of the Company’s Business Transformation Plan. Included in SG&A and R&D in Q2 2021 is $2.1 million of costs related to restructuring charges, and severance and benefit costs associated with the Business Transformation Plan. Excluding these impacts, Q2 2021 SG&A and R&D was $42.3 million.
  • Adjusted EBITDA1 in Q2 2021 was a loss of $16.8 million ($12.1 million loss excluding the increase in revenue provisions and restructuring costs), compared to the prior year Adjusted EBITDA loss of $69.9 million primarily driven by the substantial decrease in SG&A and R&D expenses.

Additional Financial Information:

  • Cash balance as of February 10, 2021 was approximately $565 million.
  • Aurora continues to increase its operational flexibility to improve its cashflow and better address consumer needs by reducing production and complexity. Of the four cultivation facilities set to close, three are now fully shuttered. Effective December 15, 2020, the Company also shuttered operations at the Aurora Sun facility and reduced production at its Aurora Sky facility by 75%, where it is testing new processes and methodologies proven successful at other premium cultivation sites.

Fiscal Q2 2021 Cash Use: Significant Improvement in Cash Used in Operations

Total cash use in Q2 2021 showed significant improvement relative to both Q2 2020 and Q1 2021.

In Q2 2021, the Company used $22.7 million in cash to fund operations, excluding working capital investments.  This use included $2.1 million in restructuring/termination payments. Cash used to pay for capital expenditures, net of disposals, in Q2 2021 was $8.8 million versus $15.0 million in the prior quarter, as many long-lead projects are now complete. Cash used in operations and for capital expenditures are crucial metrics in Aurora’s drive toward generating sustainable positive free cash flow, and both have improved significantly and consistently over the past several quarters.

Increased net working capital used $30.4 million in the quarter, driven by a $23.9 million decrease in accounts payable and a $11.7 million increase in prepaids, offset by a $16.4 million decrease in accounts receivable. Within working capital, inventory and biological assets used $10.0 million, a marked improvement from the $25.1 million in Q1 2021 demonstrating the Company’s progress to more closely align production levels with demand.

Given Aurora’s continued strong gross margins, reduced level of SG&A expense and capital expenditures, and ongoing improvements in working capital investment, management expects the Company to continue its progress toward positive cash flow.

The main components of cash source and use in Q2 2021 were as follows:

($ thousands)

Q2 2021

Q2 2020(3)

Q1 2021

Cash Flow

Cash, Opening

$133,678

$152,526

$162,179

Cash used in operations

($22,709)

($84,766)

($72,580)

Working capital change

($30,433)

($54,238)

($37,012)

Capital expenditures

($8,837)

($128,405)

($14,980)

Debt and interest payments

($8,559)

($5,579)

($18,212)

Cash use

($70,538)

($272,988)

($142,784)

Proceeds raised from sale of marketable securities and investments in associates

$6,135

Proceeds raised through debt

$14,394

Proceeds raised through equity financing (1)

$365,111

$262,402

$114,283

Cash raised

$371,246

$276,796

$114,283

Cash, Ending (2)

$434,386

$156,334

$133,678

(1)

Includes impact of FX on USD cash raised from financing

(2)

Ending cash balance above includes $50.0M restricted cash as required under the amended BMO Credit Facility. The $50.0M restricted cash can be used to repay, at any time at the Company’s discretion the outstanding principal on its term loan on a 1:1 basis with a corresponding reduction in the restricted cash balance requirement.

(3)

Previous reported amounts have been restated to adjust for the change in accounting policy for inventory costing relating to by-products and the allocation of production management staff salaries. Refer to Note 2(e) of the unaudited Condensed Consolidated Interim Financial Statements for a reconciliation on the change in accounting policy.

Refer to “Condensed Consolidated Interim Statement of Cash Flows” in the “Condensed Consolidated Interim Financial Statements (unaudited)” for our cash flow statements prepared in accordance with IAS 7 – Statement of Cash Flows.

Q2 2021 Key Financial and Operational Metrics

($ thousands, except Operational Results)

Q2 2021

Q1 2021

$ Change

% Change

Q2 2020

$ Change

% Change

Financial Results

Total net revenue (1)

$67,673

$67,812

($139)

0

%

$55,138

$12,535

23

%

Cannabis net revenue (1)(2)(3a)

$67,673

$67,812

($139)

0

%

$52,676

$14,997

28

%

Medical cannabis net revenue (2)(3a)

$38,856

$33,474

$5,382

16

%

$27,386

$11,470

42

%

Consumer cannabis net revenue (1)(2)(3a)

$28,573

$34,338

($5,765)

(17)

%

$22,906

$5,667

25

%

Wholesale bulk cannabis net revenue (2)(3a)

$244

$-

$244

N/A

$2,384

($2,140)

(90)

%

Adjusted gross margin before FV
adjustments on cannabis net revenue (2)(3b)

42

%

48

%

N/A

(6)

%

48

%

N/A

(6)

%

Adjusted gross margin before FV
adjustments on medical cannabis
net revenue (2)(3b)

56

%

59

%

N/A

(3)

%

59

%

N/A

(3)

%

Adjusted gross margin before FV
adjustments on consumer cannabis
net revenue (2)(3b)

27

%

38

%

N/A

(11)

%

33

%

N/A

(6)

%

Adjusted gross margin before FV
adjustments on wholesale bulk c
annabis net revenue (2)(3b)

(305)

%

N/A

N/A

N/A

61

%

N/A

(366)

%

SG&A expense

$41,972

$44,324

($2,352)

(5)

%

$87,301

($45,329)

(52)

%

R&D expense

$2,432

$2,584

($152)

(6)

%

$6,775

($4,343)

(64)

%

Adjusted EBITDA (2) (3c)

($16,802)

($57,891)

$41,089

(71)

%

($69,857)

$53,055

(76)

%

Balance Sheet

Working capital (6)

$592,746

$201,425

$391,321

194

%

$400,070

$192,676

48

%

Cannabis inventory and biological assets (2)(4)

$179,502

$166,178

$13,324

8

%

$200,868

($21,366)

(11)

%

Total assets (6)

$2,830,190

$2,757,272

$72,918

3

%

$4,656,046

($1,825,856)

(39)

%

Operational Results – Cannabis

Average net selling price of dried cannabis (2)

$4.00

$3.72

$0.28

8

%

$4.69

($0.69)

(15)

%

Kilograms sold (5)

15,253

16,139

(886)

(5)

%

9,501

5,752

61

%

(1) 

Includes the impact of actual and expected product returns and price adjustments (three months ended December 31, 2020 – $2.7 million; three months ended September 30, 2020 – $0.8 million).

(2) 

These terms are defined in the “Cautionary Statement Regarding Certain Non-GAAP Performance Measures” section of the MD&A.  Excluding product return provisions and restructuring charges, Adjusted EBITDA is $12.1 million.

(3) 

Refer to the following MD&A sections for reconciliation of non-GAAP measures to the IFRS equivalent measure:

a.

Refer to the “Revenue” section for a reconciliation of cannabis net revenue to the IFRS equivalent.

b.

Refer to the “Cost of Sales and Gross Margin” section for reconciliation to the IFRS equivalent.

c.

Refer to the “Adjusted EBITDA” section for reconciliation to the IFRS equivalent.

(4) 

Represents total biological assets and cannabis inventory, exclusive of merchandise, accessories, supplies and consumables.

(5) 

The kilograms sold is offset by the grams returned during the period.

(6) 

In accordance with IFRS 3 – Business Combinations, acquisition date fair values assigned to the Reliva purchase price allocation and goodwill have been adjusted, within the applicable measurement period, where new information is obtained about facts and circumstances that existed at the acquisition date. Refer to Note 12 of the Financial Statements.

Events Subsequent to Q2 2021 Quarter End

  • On January 14, 2021, Aurora entered into an agreement with Great North Distributors Inc., Canada’s first national sales broker for legalized adult-use cannabis, to be the exclusive representative for Aurora’s Canadian cannabis retail brands. Great North has reach across every province in Canada, including established relationships and expertise in working with provincially-owned and operated retailers and private retailers in Canada’s cannabis industry. The agreement was designed to significantly bolster Aurora’s market position in Canada.
  • On January 26, 2021, Aurora closed its bought deal public offering (the “Offering”) of units of the Company for total gross proceeds of US$137.9 million. The Company sold 13,200,000 Units at a price of US$10.45 per Unit, including 1,200,000 Units sold pursuant to the exercise in full of the underwriters’ over-allotment option. BMO Capital Markets and ATB Capital Markets acted as the bookrunners for the Offering. The Company believes that this opportunistic financing fits with its broader strategy to have a strong balance sheet while maintaining maximum flexibility to invest and build towards being a leader in global cannabinoids.
  • Additionally, Allan Cleiren, Chief Operating Officer, has decided to retire from the Company effective March 31, 2021. The Company would like to thank Allan for his years of dedicated service and wish him well in his future endeavours.

Conference Call

Aurora will host a conference call today, February 11, 2021, to discuss these results. Miguel Martin, Chief Executive Officer, and Glen Ibbott, Chief Financial Officer, will host the call starting at 5:00 p.m. Eastern time. A question and answer session will follow management’s presentation.

About Aurora

Aurora is a global leader in the cannabis industry serving both the medical and consumer markets. Headquartered in Edmonton, Alberta, Aurora is a pioneer in global cannabis dedicated to helping people improve their lives. The Company’s brand portfolio includes Aurora, Aurora Drift, San Rafael ’71, Daily Special, AltaVie, MedReleaf, CanniMed, Whistler, and Reliva CBD. Providing customers with innovative, high-quality cannabis products, Aurora’s brands continue to break through as industry leaders in the medical, performance, wellness and recreational markets wherever they are launched. For more information, please visit our website at www.auroramj.com.

Aurora’s common shares trade on the TSX and NYSE under the symbol “ACB”, and is a constituent of the S&P/TSX Composite Index.

Forward Looking Statements

This news release includes certain statements which may constitute “forward-looking information” and “forward-looking statements” within the meaning of Canadian securities law requirements (collectively, “forward-looking statements” or “FLS”). These forward-looking statements are made as of the date of this press release and the Company does not intend, and does not assume any obligation, to update these FLS, except as required under applicable securities legislation. FLS relate to future events or future performance and reflect Company management’s expectations or beliefs regarding future events. In certain cases, FLS can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved” or the negative of these terms or comparable terminology. In this document, certain forward-looking statements are identified by words including “may”, “future”, “expected”, “intends” and “estimates”. By their very nature FLS involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the FLS. The Company provides no assurance that FLS will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on FLS. Certain FLS in this press release include, but are not limited to the following:

  • the impact of the Company’s premium product focus and variable cost model
  • delivery of shareholder value
  • strategic relationships, and capital expenditures, and related benefits;
  • future strategic plans;
  • growth in the global consumer use cannabis market;
  • expectations regarding production capacity, costs and yields; and
  • expectations regarding progress towards positive cash flow

The above and other aspects of the Company’s anticipated future operations are forward-looking in nature and, as a result, are subject to certain risks and uncertainties. Although the Company believes that the expectations reflected in these FLS are reasonable, undue reliance should not be placed on them as actual results may differ materially from the forward-looking statements. Such FLS are estimates reflecting the Company’s best judgment based upon current information and involve a number of risks and uncertainties, and there can be no assurance that other factors will not affect the accuracy of such forward-looking statements. These risks include, but are not limited to, the ability to retain key personnel, the ability to continue investing in infrastructure to support growth, the ability to obtain financing on acceptable terms, the continued quality of our products, customer experience and retention, the development of third party government and non-government consumer sales channels, management’s estimates of consumer demand in Canada and in jurisdictions where the Company exports, expectations of future results and expenses, the availability of additional capital to complete construction projects and facilities improvements, the risk of successful integration of acquired business and operations, management’s estimation that SG&A will grow only in proportion of revenue growth, the ability to expand and maintain distribution capabilities, the impact of competition, the general impact of financial market conditions, the yield from cannabis growing operations, product demand, changes in prices of required commodities, competition, and the possibility for changes in laws, rules, and regulations in the industry, epidemics, pandemics or other public health crises, including the current outbreak of COVID-19. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such information.

Should one or more of these risks or uncertainties materialize, or should underlying factors or assumptions prove incorrect, actual results may vary materially from those described in forward looking statements. Material factors or assumptions involved in developing forward-looking statements include, without limitation, publicly available information from governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry which the Company believes to be reasonable.

Although the Company believes that the expectations conveyed by the forward-looking statements are reasonable based on the information available to the Company on the date hereof, no assurance can be given as to future results, approvals or achievements. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement. The Company disclaims any duty to update any of the forward-looking statements after the date of this Annual Information form except as otherwise required by applicable law.

Non-GAAP Measures

The Company uses certain financial performance measures that are not recognized or defined under IFRS (termed “Non-GAAP Measures”). As a result, this data may not be comparable to data presented by other licensed producers of cannabis and cannabis companies. For an explanation of these measures to related comparable financial information presented in the consolidated financial statements prepared in accordance with IFRS, refer to the discussion below. The Company believes that these Non-GAAP Measures are useful indicators of operating performance and are specifically used by management to assess the financial and operational performance of the Company. These Non-GAAP Measures include, but are not limited, to the following:

  • Cannabis net revenue represents revenue from the sale of cannabis products, excluding excise taxes. Cannabis net revenue is further broken down as follows:
    • Medical cannabis net revenue represents Canadian and international cannabis net revenue for medical cannabis sales only, excluding wholesale bulk cannabis net revenue.
    • Consumer cannabis net revenue represents cannabis net revenue for consumer cannabis sales only.
    • Wholesale bulk cannabis net revenue represents cannabis net revenue for wholesale bulk sales only.
  • Management believes the cannabis net revenue measures provide more specific information about the net revenue purely generated from our core cannabis business and by market type.
  • Average net selling price per gram and gram equivalent is calculated by taking cannabis net revenue divided by total grams and grams equivalent of cannabis sold in the period. Average net selling price per gram and gram equivalent is further broken down as follows:
    • Average net selling price per gram of dried cannabis represents the average net selling price per gram for dried cannabis sales only, excluding wholesale bulk cannabis sold in the period.
    • Average net selling price per gram and gram equivalent of consumer cannabis represents the average net selling price per gram and gram equivalent for dried cannabis and cannabis extracts sold in the consumer market
      Management believes the average net selling price per gram or gram equivalent measures provide more specific information about the pricing trends over time by product and market type.
  • Adjusted gross profit before FV adjustments on cannabis net revenue represents cash gross profit and gross margin on cannabis net revenue and is calculated by subtracting from total cannabis net revenue (i) cost of sales, before the effects of changes in FV of biological assets and inventory; (ii) cost of sales from non-cannabis auxiliary support functions; and removing (iii) depreciation in cost of sales; and (iv) cannabis inventory impairment. Adjusted gross margin before FV adjustments on cannabis net revenue is calculated by dividing adjusted gross profit before FV adjustments on cannabis net revenue divided by cannabis net revenue. Adjusted gross profit and gross margin before FV adjustments on cannabis net revenue is further broken down as follows:
    • Adjusted gross profit and gross margin before FV adjustments on medical cannabis net revenue represents adjusted gross profit and gross margin before FV adjustments on sales generated in the medical market only.
    • Adjusted gross profit and gross margin before FV adjustments on consumer cannabis net revenue represents adjusted gross profit and gross margin before FV adjustments on sales generated in the consumer market only.
    • Adjusted gross profit and gross margin before FV adjustments on wholesale bulk cannabis net revenue represents adjusted gross profit and gross margin before FV adjustments on sales generated from wholesale bulk cannabis only
      Management believes that these measures provide useful information to assess the profitability of our cannabis operations as it represents the cash gross profit and margin generated from cannabis operations and excludes the effects of non-cash FV adjustments on inventory and biological assets, which are required by IFRS.
  • Adjusted EBITDA is calculated as net income (loss) excluding interest income (expense), accretion, income taxes, depreciation, amortization, changes in fair value of inventory sold, changes in fair value of biological assets, share-based compensation, acquisition costs, foreign exchange, share of income (losses) from investment in associates, government grant income, fair value gains and losses on financial instruments, gains and losses on deemed disposal, losses on disposal of assets, restructuring charges, onerous contract provisions, and non-cash impairments of deposits, property, plant and equipment, equity investments, intangibles, goodwill, and other assets. Adjusted EBITDA is intended to provide a proxy for the Company’s operating cash flow and is widely used by industry analysts to compare Aurora to its competitors, and derive expectations of future financial performance for Aurora. Adjusted EBITDA increases comparability between comparative companies by eliminating variability resulting from differences in capital structures, management decisions related to resource allocation, and the impact of FV adjustments on biological assets and inventory and financial instruments, which may be volatile and fluctuate significantly from period to period.

Non-GAAP measures should be considered together with other data prepared accordance with IFRS to enable investors to evaluate the Company’s operating results, underlying performance and prospects in a manner similar to Aurora’s management. Accordingly, these non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Reconciliation of Non-GAAP Measures

Net Revenue

Three months ended

December 31,
2020

September 30
2020

December 31,
2019 (1)

Medical cannabis net revenue

38,856

33,474

27,386

Consumer cannabis net revenue

28,573

34,338

22,906

Wholesale bulk cannabis net revenue

244

2,384

Total cannabis net revenue

67,673

67,812

52,676

Total net revenue

67,673

67,812

55,138

(1) 

As a result of the Company’s divestment of its wholly owned subsidiaries ALPS and AHE, the operations of ALPS and AHE have been presented as discontinued operations and the Company’s results have been retroactively restated, as required. Refer to Note 11(b) of the Financial Statements for information about the divestitures.

Adjusted Gross Margin

($ thousands)

Medical
Cannabis

Consumer
Cannabis

Wholesale bulk
Cannabis

Ancillary
Support
Functions

Total

Three months ended December 31, 2020

Net revenue

38,856

28,573

244

67,673

Cost of sales

(23,946)

(25,681)

(1,017)

(50,644)

Gross profit (loss) before FV adjustments

14,910

2,892

(773)

17,029

Depreciation in cost of sales

6,376

4,472

29

10,877

Inventory impairment in cost of sales

333

406

739

Adjusted gross profit (loss) before FV adjustments

21,619

7,770

(744)

28,645

Adjusted gross margin before FV adjustments

56

%

27

%

(305)%

42

%

Three months ended September 30, 2020

Net revenue

33,474

34,338

67,812

Cost of sales

(18,150)

(25,144)

(43,294)

Gross profit before FV adjustments

15,324

9,194

24,518

Depreciation

4,587

3,783

8,370

Adjusted gross profit before FV adjustments

19,911

12,977

32,888

Adjusted gross margin before FV adjustments

59

%

38

%

48

%

Three months ended December 31, 2019 (1)(2)

Net revenue

27,386

22,906

2,384

2,462

55,138

Cost of sales

(14,099)

(18,129)

(1,169)

(3,540)

(36,937)

Gross profit (loss) before FV adjustments

13,287

4,777

1,215

(1,078)

18,201

Depreciation

2,992

2,793

233

6,018

Adjusted gross profit (loss) before FV adjustments

16,279

7,570

1,448

(1,078)

24,219

Adjusted gross margin before FV adjustments

59

%

33

%

61%

(44)%

44

%

(1) 

Previous reported amounts have been restated to adjust for the change in accounting policy for inventory costing relating to by-products and the allocation of production management staff salaries. Refer to Note 2(e) of the unaudited Condensed Consolidated Interim Financial Statements for a reconciliation on the change in accounting policy.

(2) 

As a result of the Company’s divestment of its wholly owned subsidiaries ALPS and AHE, the operations of ALPS and AHE have been presented as discontinued operations and the Company’s results have been retroactively restated, as required. Refer to Note 11(b) of the Financial Statements for information about the divestitures.

Adjusted EBITDA

($ thousands)

December 31, 2020

September 30, 2020

December 31, 2019 (3)(4)

Net (loss) income from continuing operations

(292,788)

(107,160)

(1,302,175)

Finance costs

18,872

14,691

23,833

Interest (income) expense

(1,865)

(1,267)

(1,997)

Income tax expense (recovery)

3,167

611

(25,136)

Depreciation and amortization

24,883

22,444

26,757

EBITDA

(247,731)

(70,681)

(1,278,718)

Changes in fair value of inventory sold

5,942

3,304

13,223

Unrealized gain on changes in fair value of biological assets

(6,262)

(5,407)

(7,932)

Share-based compensation

5,987

6,861

19,694

Acquisition costs

1,104

2,059

Foreign exchange loss (gain)

527

(7,427)

961

Share of loss from investment in associates

117

373

1,930

Government grant income

(23,678)

Losses (gains) on financial instruments (1)

17,309

7,366

166,877

Losses (gains) on deemed disposal of significant influence investment

1,443

Gains (losses) on disposal of assets held for sale and property, plant, and equipment

(3,317)

922

Restructuring charges

210

Onerous contract provision

2,000

Impairment of deposits, inventory, investment in associate,
property, plant and equipment, intangibles, and goodwill

232,304

4,041

1,012,049

Adjusted EBITDA (2)

(16,802)

(57,891)

(69,857)

(1) 

Includes fair value changes on derivative investments, derivative liability, contingent consideration, and (gain) loss on the modification of debt. Refer to Note 20 of the Financial Statements.

(2) 

Adjusted EBITDA is a non-GAAP financial measure and is not a recognized, defined, or standardized measure under IFRS. Refer to “Cautionary Statement Regarding Certain Non-GAAP Performance Measures” section of the MD&A.

(3) 

Previous reported amounts have been restated to adjust for the change in accounting policy for inventory costing relating to by-products and the allocation of production management staff salaries. Refer to Note 2(e) of the unaudited Condensed Consolidated Interim Financial Statements for a reconciliation on the change in accounting policy.

(4) 

As a result of the Company’s divestment of its wholly owned subsidiaries ALPS and AHE, the operations of ALPS and AHE have been presented as discontinued operations and the Company’s results have been retroactively restated, as required. Refer to Note 11(b) of the Financial Statements for information about the divestitures.

Included in the three months ended December 31, 2020 Adjusted EBITDA loss is $0.8 (three months ended September 30, 2020 – $43.3 million) legal settlement and contract termination fees and $2.1 million (three months ended September 30, 2020 – $4.1 million) related restructuring charges, severance and benefits associated with the business transformation plan. Excluding these impacts, Adjusted EBITDA loss is $13.9 million (three months ended September 30, 2020 – $10.5 million).

SOURCE Aurora Cannabis Inc.

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Published at Fri, 12 Feb 2021 12:08:03 +0000

Tilray Is Quickly Becoming The Best Way To Play The Incoming European Cannabis Boom

Tilray Is Quickly Becoming The Best Way To Play The Incoming European Cannabis Boom

2021 has already proven to be a very active year for Tilray Inc. (TLRY) and we are not even halfway through February.

So far this year, Tilray has rallied more than 100% and has been a top performing cannabis stock. Although the market became conditioned to Tilray’s volatile price swings in 2018 (when the stock price traded as high as $300), the recent trend has been supported by substantial developments and we believe our readers need to be aware of this.

At current levels, Tilray is trading at very overbought levels and momentum has shown no signs of slowing down. Going forward, we believe the market is highly focused on Tilray’s expansion in the European Union (EU) and the merger with Aphria, Inc. (APHA.TO) (APHA). We consider these primary themes to be the most important aspects of the story and want to provide an update on the recent developments.

A Global Execution Story to be Aware of

During the last month, Tilray has reported several major advancements in the EU cannabis market and this is an opportunity that we have been bullish on for several years. The primary reason for our positive view on the EU cannabis industry is related to the profit margins that are associated with the sale of it. When compared to North America, the EU’s cannabis market is much less saturated, and we consider this to be a key pillar of our long-term investment thesis.

Earlier this week, Tilray reported to have entered into an agreement with Grow Pharma to import and distribute branded medical cannabis products into the United Kingdom (UK). By March, the company expects to have a range of Good Manufacturing Processes (GMP) certified, medical cannabis products available for patients and are bullish on the long-term value that is associated with the UK market.

As demand for medical cannabis continues to increase in the UK, Tilray is positioned to capitalize on the trend and is executing on a strategy to become leading global medical cannabis products supplier. The regulatory trend in the EU is progressive and there has been a steady increase in the number of markets that have legalized medical cannabis.

Tilray has Been Ahead of the Curve with the EU Cannabis Market

We believe that Tilray has been ahead of the curve with the EU cannabis market and expect the acquisition of Aphria to serve as a substantial growth catalyst. The combined company will be levered to some of the attractive verticals of the cannabis value chain in the EU and we are bullish on the amount of synergies that can be found between Aphria and Tilray.

Once the merger agreement is approved, Canopy Growth Corporation (WEED.TO) (CGC) will be facing a formidable opponent and we believe that Aphria and Tilray have better exposure to burgeoning international cannabis markets. We believe that competition in the cannabis industry is heating up and expect to see more consolidation in 2021 and beyond.

Companies like HEXO Corporation (HEXO.TO) (HEXO) and Aurora Cannabis Inc. (ACB.TO) (ACB) could prove to be acquisition targets for companies like Canopy Growth or Cronos Group (CRON.TO) (CRON) and this is a trend to be aware of.

If you are interested in learning more about the growth prospects that are associated with the combined company, please send an email to support@technical420.com with the subject “Aphria and Tilray” to be added to our distribution list.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

Published at Fri, 12 Feb 2021 12:26:26 +0000

Are These 2 Marijuana Penny Stocks A Good Investment In February

Are These 2 Marijuana Penny Stocks A Good Investment In February




Are These 2 Marijuana Penny Stocks A Good Investment In February | Marijuana Stocks | Cannabis Investments and News. Roots of a Budding Industry.™
























Published at Fri, 12 Feb 2021 21:13:46 +0000

Aurora Cannabis Gets Price Targets Slashed After Lackluster Q2 Earnings Release

Aurora Cannabis Gets Price Targets Slashed After Lackluster Q2 Earnings Release

Last week, Aurora Cannabis Inc. (ACB.TO) (ACB) released second quarter financial results and the market responded negatively to the numbers.

Following the earnings report, several leading Canadian and US broker-dealers responded with the following:

  1. ATB Capital Markets raised its price target to $13 from $10.50 (CAD)
  2. MKM Partners changed its rating to Sell from Hold
  3. Canaccord Genuity raised its price target to $14 from $11 (CAD)
  4. Stifel raised its price target to $7.8 from $6.50 (CAD)

During the second quarter, Aurora Cannabis recorded a more than $290 million net loss on $70 million of revenue. The company reported a Adjusted EBITDA loss of $16.8 million and the amount included termination and restructuring costs. Most of the net loss is related to non-cash items and we will monitor how Aurora Cannabis’ numbers move from here.

An important metric to highlight from the second quarter is the adjusted gross margin. During the quarter, Aurora Cannabis recorded a 6% decline in margins when compared to the same period last year. The decrease is the result of a reduction in production levels at Aurora Sky which caused there to be an increase in cash cost of sales due to the under-utilization of capacity at the facility.

For the last year, Aurora Cannabis has talked a lot about rightsizing the operation and closing production facilities across the world. Clearly Aurora Cannabis’ rightsizing process is taking longer than expected and we look forward to the day the management team announces that they have completed the process.

In the near-term, we expect Aurora Cannabis to remain challenged and will monitor how it impacts the performance of the brand. The company recently announced a financing agreement and we believe the resources will be key for enhancing the company’s footprint in strategic markets (Canada, the US, the EU, and Latin America).

As of February 10th,  Aurora Cannabis reported to have approximately $565 million of cash on hand. The company continues to focus on improving operational flexibility and expects this project to be a positive for cash flow. Of the four cultivation facilities that Aurora Cannabis plans to close, three are fully shuttered and we will monitor how the management team continues to execute on this.

During the last month Aurora Cannabis has seen its stock price surge higher and it is currently trading above the price target levels that were reported by broker-dealers (highlighted in the beginning of the story). Going forward, we are cautious with Aurora Cannabis and this is due to the volatility that is associated with the trend.

If you are interested in learning more about Aurora Cannabis, please send an email to support@technical420.com with the subject “Aurora Cannabis” to be added to our distribution list.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

Published at Fri, 12 Feb 2021 14:29:37 +0000

Colorado Cannabis Sales Approaching $10 Billion

Colorado Cannabis Sales Approaching $10 Billion

Anarkoooo | Adobe Stock

As the state-by-state markets continue to grow, major players outside the cannabis industry are looking for a way in. And those already with a footprint in the sector are poised to go bigger.

Earlier this month, a blockbuster deal kicked off the 2021 cannabis merger-and-acquisition season, when Ireland-based Jazz Pharmaceuticals inked a $7.2-billion deal to acquire United Kingdom-based GW Pharmaceuticals, the manufacturer of the Food and Drug Administration-approved Epidiolex. It was the biggest handshake yet for the cannabis industry, and it could be just the beginning of what’s to come in a global market still in its infancy.

At Fox Rothschild, a Philadelphia-based law firm with a national cannabis practice group, Partner Melissa Sanders and Associate Jared Schwass told clients there is much more room for businesses to expand in an alert they released Feb. 1.

Sanders advises corporate clients on a wide range of business matters, with a particular focus on mergers and acquisitions, private placements of securities, financing transactions and ownership transition programs. Schwass is an attorney in the corporate department and a member of the firm’s Cannabis Law Practice Group. He advises businesses entering and operating in the legalized cannabis market on regulatory compliance, risk mitigation and business transactions.

“At the end of 2020, we saw an uptick in merger-and-acquisition activity as the industry shook off some pandemic-related instability, and we expect that trend to increase significantly in 2021,” they said in the alert.

“Despite abundant money available to the large multi-state operators (MSOs), most cannabis companies still have relatively limited avenues to raise capital due to the federal illegality of the industry,” they said. “However, that may change soon with the democrats now controlling both houses of Congress and the White House.”

When cannabis is descheduled, Sanders and Schwass said they anticipate an influx of cash into the sector, as previously reluctant investors and institutions enter the market without fear of federal repercussions.

Here, Sanders and Schwass share more about M&A activity trends, anticipations and indicators, and how MSOs and smaller businesses alike can position themselves for possible growth opportunities.                        

Tony Lange: What stood out most about how M&A activities shaped up in the 2020 cannabis industry?

Fox Rothschild | foxrothschild.com

Melissa Sanders, partner 

Melissa Sanders: I think we were seeing a lot of the distressed assets being snapped up. And even outside of the distressed assets, there were some good deals to be had. As we’re moving into 2021, that’s continuing. But I think that with the change in the Senate and legalization potentially on the forefront, additional capital is coming in and we’re going to see more M&A overall.

Jared Schwass: When COVID-19 first hit, there was kind of a lull in activity. Then, when medical necessities and distressed assets became available, that’s when the serial acquirers were buying up. And then we did see, towards the end, a couple of mergers that that were big news. I feel like more of that’s going to happen in 2021.

TL: How much would cannabis legislation at the federal level impact M&A activity?

MS: Federal legislation has some weight. I don’t want to overstate it, because we have to wait and see, but I do think it will bring in some potential money of folks who were still a little hesitant to maybe get into the business and essentially raise capital or put capital into other companies. The actual operators, they’ve already made the bet on cannabis. So, for them, a lot of it has been dependent on where the capital’s at.

JS: In addition to the increased capital that we can see, I believe with the descheduling on the Controlled Substances Act, that we’ll see major players outside of the cannabis industry start looking at trying to get into the industry.

TL: Regardless of the makeup of Congress, what are your anticipations for the rest of 2021?

MS: Regardless of what does happen at the federal level, I think M&A activity is going to be on the upswing. There are still a lot of good deals to be had out there. I also think people are anticipating and hopeful for an economic turnaround. So, deals are going to continue to happen and continue to grow.

I do think that we’re in a little bit of a different position than we were the last time there was this huge amount of M&A activity in the sense that companies are more mature. They’re seeing the things that maybe went wrong or weren’t ideal in former deals. So, although the increase is going to make for more competition for acquirers, I don’t think it’s going to be the same as it was in 2019, when people were really overlooking some real blemishes in companies just to keep growing and get in there. Now people really are looking at the fundamentals of the business and making sure they’ve got the corporate books and things like that.

-Melissa Sanders, Fox Rothschild partner 

JS: To add to that, regardless of what happens in Congress and the Senate, I think that M&A activity is going to still continue. We’re going to see a significant activity in that area, and there’s going to be a lot of consolidation in the coming years.

TL: Do you think small-scale cannabis businesses are a dying breed?

MS: I personally don’t think so, because there is a market for these independent companies and independent brands. That market is going to remain in cannabis and other industries. I do think that it’s going to be a lot harder for them to survive and compete, but I don’t think it’s a dying breed.

We’re still seeing a lot of small, one-off acquisitions. A lot of them are actually growing but not looking to necessarily become a huge MSO, although some of them are.

Fox Rothschild | foxrothschild.com

Jared Schwass, associate

JS: I don’t think it’s dying. I think it’s difficult, especially the small farmers up in Northern California are struggling. But I think through struggle comes perseverance. There is something to be said about these small farms and these small kind of craft brands that there still is a market for them, and there will continue to be a market for them.

TL: How can some of the small-scale cannabis businesses make themselves attractable for sale, if that’s the path they want to go?

MS: If they want to make themselves attractive, the biggest thing is getting everything in order, making sure they’ve got records or descriptions, depending on how old the company is; there was a time when companies weren’t keeping great records. If they don’t have them, they don’t have them, but getting whatever they do have in order, looking at where there are holes to the extent that they’re fixable, to work on those, and also just getting kind of all of their paperwork in order to make sure they’re tracking things will help. When an acquirer comes in, they’re going to want to do a lot of due diligence on the business and legal side. And, so, being able to present those materials quickly is important.

JS: I second that. Clean books are very important so there’s no questions on ownership or taxes or anything like that. And, generally speaking, good cashflow, not a lot of debt on the books, that type of stuff is important too.

TL: How can MSOs stay on top of the competitive M&A market so they can take advantage of opportunities as they arise?

MS: That’s a good question. A lot of it is just staying on top of who all of the operators are in the areas that make sense for you strategically. I think MSOs are going to acquire strategically this year, and making sure that they understand who the players are in each market, and whether those players might be open to sale, can help them approach the right people at the right time.

JS: Knowing who to acquire, what licenses, where, what states are opening up and doing your own market research is valuable in making sure that if you want to enter into a market in a different state, that that’s going to work for your business. Just doing your own due diligence and research in the market is essential to taking advantage of those opportunities.

TL: What sparks companies to decide whether a merger is right for them, or they’re better off pursing an acquisition?

MS: The same deal could really, in most cases, be structured as a merger or an acquisition just depending on certain legal points and tax points. I think we are seeing a lot of the larger deals as mergers, in large part because it’s going to be stock-for-stock and not a lot of cash. A lot of the stock deals are more merger-oriented and a lot of the cash deals may be structured as acquisitions, but that’s not 100% across the board. And definitely the smaller one-off deals, those are almost always structured as acquisitions and not mergers.

JS: Generally speaking, the bigger deals are to be more of a merger, when two bigger companies come together, whereas when you have a bigger company looking to just expand its market in a specific area, just buying a small business here and there, those are going to be obviously acquisitions.

TL: What states or regions do you forecast being hotbeds for M&A activity in the U.S.?

MS: I do think states that recently passed adult-use legalization, especially those that previously had medical programs, a lot of times there are going to be procedures for them to convert their companies, and those states will probably see M&A activity.

JS: California has a bunch of independent operators, and I believe the market is right for consolidation if companies can find synergies within themselves. Regardless of what happens in Congress, I think that we’re going to see continued M&A activity just because the market, the industry itself, is in its infancy and people are growing. But if the federal government decides to deschedule or legalize cannabis this year, I believe we will see a significant uptick in that activity.

Editor’s Note: This interview has been edited for style, length and clarity.

Published at Thu, 11 Feb 2021 21:23:00 +0000

Australis Provides Acquisition and Corporate Update

Australis Provides Acquisition and Corporate Update

Australis Capital Inc. (CSE: AUSA) (OTC: AUSAF) (“AUSA” or the “Company”) today announced that the Company is progressing well towards completion of the previously announced proposed acquisitions of ALPS and Green Therapeutics LLC (“GT”).

Australis Capital Inc. logo (CNW Group/Australis Capital Inc.)

Acquisitions Update

The Company is working towards the completion of the acquisition of a 51% interest in ALPS and the acquisition of 100% of the outstanding membership interest in Green Therapeutics, which includes the discontinuation of all previous litigation with Green Therapeutics. As per the Company’s commitment to keep our shareholders fully informed and apprised, we are expecting to enter into definitive agreements with ALPS in short order.

The GT transaction is also advancing, and definitive agreements are being drafted to meet applicable U.S. state regulatory requirements. ALPS and AUSA have agreed to extend the completion of the definitive agreements to February 22, 2021 . It is anticipated by the Company that the ALPS transaction will close first, with the close of the GT closing following shortly thereafter.

Green Therapeutics

GT continues to turn out exceptional, high-end products. Three of the Company’s Cultivars, sold under the GT Flowers brand, have tested for high potency with exceptional terpene profiles:

  • London Poundcake tested at 35% THC with 18.9 mg/g terpenes;
  • Sliver Hawks Haze tested at 30% THC with 23.4 mg/g terpenes, and
  • Phatt Fruity tested at 29.8% THC with 21.1 mg/g terpenes.

The high quality of these products, due to GT’s science-based approach to cultivation, is reflected in GT products consistently selling out in the Nevadaadult usage space in which GT has achieved a 52% penetration rate.

Additionally, GT is in the process of operationalizing assets in Missouri and Oklahoma . In Missouri , GT has completed work on a processing and manufacturing facility in which GT principal and AUSA Interim CEO, Dr. Duke Fu , holds a 25% ownership stake, and is in the process of securing distribution for GT’s brands. It is anticipated that AUSA will obtain this ownership interest at a future time once permitted by applicable Missouri State licensing authorities. GT remains on target to commence production at its facility in Oklahoma in the second half of calendar 2021.

Dr. Fu, Interim CEO of AUSA, commented, “Being able to consistently produce connoisseur cultivars that deliver exceptional potency and superb terpene profiles is an achievement that we are rightly proud of. We believe that the combined Team with AUSA, and through them with ALPS, will enable us to execute on the scale-up of our brands. This combination will provide consumers and patients across the U.S. with access to our unique product portfolio. We look forward to GT becoming an official member of the AUSA family and jointly building an innovative, capital efficient MSO with national and global reach.”

The acquisition of GT is contingent on approval by the State of Nevada’s Cannabis Control Board and subsequent local approval by Clark County Department of Business Licensing.

ALPS – Continued Execution and Innovation

ALPS is engaged in a number of projects incorporating innovation and new intellectual property. One such project is with a Scandinavian grower of tomatoes and cucumbers. At this new facility, ALPS has developed an ultra-precise environment control system, significantly improving propagation success rates and therefore economic output. ALPS retains the rights to the intellectual property developed and will be able to use this technology in the cannabis sector.

Thomas Larssen , President of ALPS, stated: “The project in Scandinavia, where we developed a new micro-precision climate control system is a great showcase of how our innovations have immediate commercial applications. We are proud of this innovation and look forward to seeing the results as new facilities incorporating our innovations come online and deliver the enhanced return on investment our customers have become accustomed to.”

Since the AUSA/ALPS transaction was announced on January 5, 2021 , ALPS have signed four contracts for combined revenues in excess of $5 million :

  • Cann Group, Australia – high tech cannabis facility with ongoing APIS compliance and maintenance contract;
  • Aldershot Greenhouses, Canada – high-tech flower growing facility;
  • Bluehouse Greenhouse, U.S. large-scale, high-tech greenhouse complex for the supply of local markets with vegetable production;
  • Vertical Harvest, U.S. – multi-story urban grow facility.

With a strong pipeline of potential new projects on which ALPS continues to convert, the Company is expected to add considerable revenues to AUSA upon closing of the transaction, as well as make positive, accretive contributions towards the Company’s bottom line. ALPS milestones, when met, will secure the Company’s position as a leader in the U.S. cannabis space.

BAMM Achieves Record-Level Revenues and Adjusted EBITDA Positive Operations

Body and Mind Inc (CSE: BAMM), in which AUSA holds a material ownership interest, recently announced record revenues for its fiscal Q1 2021 endingOctober 31, 2020 . Some of the highlights were:

  • Revenues of $5.3 million were up by 144% sequentially from Q4 FY2020 and up by 267% Year-over-Year;
  • A gross profit of $1.8 million ;
  • Positive Adjusted EBITDA achieved;
  • Managed Q1 FY2021 revenues of $6.49 million .

BAMM management advises that their premium brands continue to resonate very well with its target audiences, and with operating assets in California ,Nevada , Ohio and Arkansas , BAMM is well positioned to achieve continued growth. With the official transfer of ownership of previously acquired assets, BAMM going forward will be able to consolidate the successes of its new assets, complete current development projects and further expand its footprint. AUSA and BAMM continue to be in discussions on realizing optimal potential synergies going forward. See the Body and Mind press release February 2, 2021 and SEDAR filings ( www.sedar.com ) for more details.

Clearview

The Company has retained Clearview Capital Consult to assist AUSA with its investor relations efforts. Founded by Marc Lakmaaker, former VP of IR and Director of Corporate development at Aurora Cannabis Inc., Clearview , a strategy and communications consultancy, brings a deep understanding and network in the cannabis industry and the capital markets.

Terry Booth , who is expected to be appointed as CEO of AUSA upon completion of the acquisition of ALPS, stated: “We worked with Marc for several years at Aurora where he did an exceptional job in crafting and connecting the Aurora story with its stakeholders. The appointment of Clearview is fully in line with AUSA’s promise to run an active IR program, and I look forward to working with Marc and his team as AUSA continues to execute and inform its shareholders and the markets on its progress, execution and achievements.”

Under the terms of the agreement, Clearview is paid $10,000 monthly and has been granted 100,000 options priced at $0.475 per share. The options have been granted conditionally on the ratification of the Company’s stock option plan at its next meeting of shareholders.

About Australis Capital Inc.

AUSA is implementing a growth strategy towards establishing a highly competitive and profitable MSO in the U.S. and global cannabis markets. AUSA’s business and assets include investments in Cocoon, Body and Mind Inc., Quality Green, Folium Biosciences, and land assets in Washington and Michigan. AUSA is currently working towards the closing of a transaction whereby it will acquire 100% of the membership interest in Green Therapeutics LLC, an award-winning MSO with operations in Nevada , Missouri and Oklahoma . Furthermore, the Company is finalizing a definitive agreement to acquire 51% of the issued and outstanding shares of ALPS, the world’s premier design, construction management, commissioning and post commissioning consultancy for horticultural crops, such as cannabis, fruits, vegetables, mushrooms and algae. If completed, the Company will also hold an option for the acquisition of the remaining 49% of ALPS. Through GT and ALPS, the Company believes it will be able to secure low-cost access to cannabis biomass to fuel the scale up of its award-winning brands across the U.S. and global cannabis markets.

The Company’s common shares trade on the CSE under the symbol “AUSA” and on the OTCQB under the symbol “AUSAF”.

For further information about AUSA, please contact:

Marc Lakmaaker
Marc.lakmaaker@ausa-corp.com
T: +1.647.289.6640

Forward-Looking Statement

This press release contains “forward-looking information” within the meaning of applicable securities legislation. All statements, other than statements of historical fact, included herein is forward-looking information. Generally, forward-looking information may be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “proposed”, “is expected”, “budgets”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases, or by the use of words or phrases which state that certain actions, events or results may, could, would, or might occur or be achieved. In particular, this press release contains forward-looking information in relation to: the timing and ability to close the proposed transactions with GT and ALPS; the anticipated development of the GT and ALPS businesses; the ability of the Company to execute on its strategy to establish a low capex model MSO; the impact of the changes to U.S. federal and state developments with respect to the cannabis industry and the opportunities this may present for the Company. This forward-looking information reflects the Company’s current beliefs and is based on information currently available to the Company and on assumptions the Company believes are reasonable. These assumptions include, but are not limited to: the ability of the Company to successfully satisfy the conditions to closing the ALPS and GT transactions; the ability of management of ALPS, GT and the Company to successfully execute on their respective business plans; legal changes relating to the cannabis industry proceeding as anticipated; and the Company’s continued response and ability to navigate the COVID-19 pandemic being consistent with, or better than, its ability and response to date.

Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. Such risks and other factors may include, but are not limited to: general business, economic, competitive, political and social uncertainties; general capital market conditions and market prices for securities; the actual results of the Company’s future operations; competition; changes in legislation affecting the Company; the timing and availability of external financing on acceptable terms; lack of qualified, skilled labour or loss of key individuals; risks related to the COVID-19 pandemic.

A description of additional risk factors that may cause actual results to differ materially from forward-looking information can be found in the Company’s disclosure documents on the SEDAR website at www.sedar.com . Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. Accordingly, readers should not place undue reliance on forward-looking information. Readers are cautioned that the foregoing list of factors is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking information as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated.

Forward-looking information contained in this press release is expressly qualified by this cautionary statement. The forward-looking information contained in this press release represents the expectations of the Company as of the date of this press release and, accordingly, are subject to change after such date. However, the Company expressly disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.

The CSE has neither approved nor disapproved the contents of this news release. Neither the CSE nor its Regulation Services Provider (as that term is defined in the policies of the CSE) accept responsibility for the adequacy or accuracy of this release.

Cision

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SOURCE Australis Capital Inc.

 

Cision

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Published at Tue, 09 Feb 2021 12:37:37 +0000

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2 Marijuana Stocks To Watch With High Percentage Gains In 2021




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