As competition drives the market, Aurora relies on new genetics to differentiate itself
The future of Aurora Cannabis Inc. could lie in a nondescript refrigerator tucked away in a humble industrial building on Vancouver Island.
Lying in a refrigerator no dissimilar to the one in your kitchen are hundreds of thousands of cannabis seeds, dutifully cataloged and stored in cool, dry conditions, which are a crucial part of the Edmonton-based company’s plan to flex its scientific muscles to help stand out from the rest of the crowded Canadian cannabis market.
Aurora’s facility in Comox, BC – called the Coast – is home to these seeds, along with dozen of cannabis tissue samples and 2,500 plants, each carefully examined to find new, unique strains that will one day cost millions of dollars said Charles Pick, senior vice president of science and innovation at Aurora Cannabis, who runs the facility on the coast.
“We have a lot of great genes to work on, but we’re already going beyond what we had,” Pick said in a phone interview. “We take plants that are already super interesting, hybridize them and can produce hundreds if not thousands of seeds.”
In a market plagued by a deluge of unmarketable cannabis, finding a unique strain of cannabis could be worth its weight in gold. Much of the country’s oversupply of cannabis is due to too many producers cultivating the same strain that was purchased from the old market and introduced into the federal system through Health Canada’s one-time amnesty program.
Jamie Blundell, chief executive officer at Segra International Corp., which develops new cannabis genetics, said the company examined about 300 cannabis products on the market, analyzed their genetics, and found that there are 40 or 50 unique strains for sale in Canada.
“These big producers can’t be the best at everything, and they can’t expect to be,” said Blundell. “Over time, companies are likely to outsource their pheno hunt, where experts will help match genetics with what they’re looking for.”
That makes finding a new strain with the right mix of high THC potency, terpene count, and visual appeal even more important for top producers, each with a similar robust seed bank and R&D program as Aurora.
The result is a dried flower product that companies can charge a premium for and grow their sales. But the space is getting tighter as manufacturers, including Aurora, move away from selling cheaper brands and focus on higher-margin products, said David Kideckel, an analyst at ATB Capital Markets.
“They compete with other, more established brands that existed before legalization,” he said in a telephone interview. “The LPs have to pursue this premium strategy, but how this will resonate with consumers who have already bought them illegally will be a big question.”
In the case of Aurora, it takes a lot of growing – and waiting – to find this new strain. The company starts with 2,500 seedlings grown from an equal number of different varieties, 80 percent of which will be put into a new growth cycle, Pick said.
These remaining plants are cloned about a dozen times and shrunk another 80 percent. The survivors are going through another strong growth cycle and if they continue to meet certain thresholds they will be sent to one of Aurora’s main manufacturing facilities for a test run before deciding whether to put them up for sale, Pick said.
It could also be licensed for sale to other producers, with Aurora getting a three to five percent royalty back on each purchase, increasing up to 10 percent for a strain with particularly unique traits like high potency or resistance to powdery mildew, Pick said.
“There’s a lot of emphasis on higher potency, so people will be looking for it because they don’t have it in their portfolio, so we’ve seen a lot of interest on that basis alone,” Pick said.
Kideckel – who maintains an “underperform” rating on Aurora stock with a target price of $ 7.50 – describes the company’s science-based approach as key to “making headway in the Canadian market,” though that is not an immediate solution for the company’s long-term development will be. standing financial problems.
“I think Aurora is well positioned to be competitive in the future, but not necessarily now as these scientific advances take time to evolve,” he said.
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Analyst Call of the Week – Desjardins previews Hexo’s third quarter results
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– The number of people in Quebec who buy their cannabis on the legal market, according to the Société québécoise du Cannabis (SQDC). Exceeding the 50 percent threshold in less than three years after legalization exceeded the province’s target set in its strategic plan 2020-2023.