Aura Health: The German Cannabis Play

The German medical cannabis market is estimated to reach $1.6 billion in sales by 2022 based on a recent study completed by Arcview Market Research and BDS Analytics. The problem, however, is that little capacity exists within the country to produce cannabis locally. As a result, the nation has been forced to turn to imports for its medical cannabis needs.

When it comes to cannabis imports within Germany, there is a small number of qualified importers and distributors that can bring the plant across borders. In fact, there’s only believed to be fifteen qualified firms that can bring cannabis into Germany. Four of which, are public. These four also happen to all be owned by Canadian companies.

While the first three owners of a distribution license come at no surprise – Canopy Growth Corp, Aurora Cannabis, and Aphria, some of the largest cannabis producing firms in the world – the fourth is a relative newcomer that many investors remain unaware of. Aura Health (CSE: BUZZ) joined this list of coveted distribution license holders after their purchase of 80% of Pharmadrug Production GmbH in February 2019.

While Aura Health is one of the most recent to acquire a distribution license, it was also one of the least expensive purchases by a public corporation. Acquiring 80% of the distributor for EUR$4.6 million, the last time a similar price was paid was when Canopy acquired Medcann in 2016 for C$10 million. At the time, Canopy obtained $118 million in market cap from the acquisition.

Public EntityDistributor% OwnershipPurchase PriceYear
AphriaCC Pharma100CAD$27.89mm2019
Aura HealthPharmadrug80CAD$6.82mm2019
Aurora CannabisPedanios100CAD$20.8mm2017
Canopy GrowthMedCann100CAD$10.4mm2016

Currently, Aura is in the process of acquiring supply agreements from cannabis producers across the globe, with the intent of importing the product to the German market. In addition to its 190 KG allocation from The Netherlands, Aura is working with two Canadian producers, as well as its own Israeli assets, for the purpose of importing cannabis to the EU.

Aura Health currently has supply agreements in place with FSD Pharma (CSE: HUGE) and BlissCo Cannabis Corp (CSE: BLIS) through Pharmadrug for the importation of cannabis to the German market. While details were not released related to BlissCo, Aura has committed to purchasing 1,000 KG of cannabis from FSD Pharma annually, at a price of $7.00 per gram FOB Germany. It was not identified when the supply agreement between FSD Pharma and Aura Health is expected to see its first shipment.

These supply agreements are in addition to Aura Health’s own intercompany supply, which will be coming from Israel upon completion of their HolyCanna facility. The facility is expected to produce 1,600 KG of cannabis per year, with a portion earmarked to be exported to Germany via Aura Health’s importation and distribution license.

With an expected selling price per gram of C$14.25, the Aura Health investor presentation identifies that the firm should generate C$2.16 million from its Netherlands allocation alone, before any other supply agreements are factored in. With respect to the FSD Pharma supply agreement, the investor deck suggests that 1,000 KG of cannabis should generate roughly C$11.4 million for Aura Health, once its 80% cut is taken into consideration. The firm expects a revenue ramp to occur in the second half of 2019.

Aura Health (CSE:BUZZ) is currently trading at $0.11, with a market cap of $9.13 million.


FULL DISCLOSURE: Aura Health is a client of Canacom Group, the parent company of The Deep Dive. The author has been compensated to cover Aura Health on The Deep Dive, with The Deep Dive having full editorial control. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.

Jay

As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive's stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.

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