Cannabis Watch: Marijuana stocks to watch: Aurora Cannabis investments may be more valuable than its pot

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The following article is part of a package of stories that MarketWatch is publishing to mark the start of full legalization of cannabis for adult recreational use in Canada on Wednesday. For more, go here.

Aurora Cannabis Inc. is a major pot producer, but if its bets on other cannabis companies continue to pay off, it may be able to stop actually growing weed on its own.

Aurora ACBFF, -7.45% ACB, -7.23%  said recently its investments were worth more than C$700 million ($540 million) as of Sept. 21, bolstered in part by demand for pot stocks ahead of full legalization of marijuana in Canada on Wednesday. As the entire sector has benefited, so has Aurora’s portfolio, boosting the company’s fiscal fourth-quarter profit to C$79.9 million, after a loss of $20.8 million the year earlier.

Read first: A guide to pot stocks: What you need to know to invest in cannabis companies

One of the company’s biggest and most profitable bets is a stake in the Green Organic Dutchman Holdings Ltd. TGODF, -3.19% TGOD, -3.17%  a C$55 million investment in the company at C$1.65 a share in January, that is worth C$5.53 a share as of Tuesday. That would value its stake at roughly C$184 million, which is equal to about 13% of the company. It has an option to increase that stake to more than 50%.

Aurora also disclosed investments in Hempco Food and Fiber Inc. HEMP, -4.85% CTT Pharmaceuticals Inc. CTTH, -3.23% Choom Holdings Inc. CHOOF, -0.53%  and a 20% stake in privately held Capcium Inc., which provides equipment to Aurora for making medicinal marijuana softgel pills.

Other marijuana stocks to watch: Tilray has global ambitions

The company spun out Australis Capital Inc. in September, as an investment company focused on the U.S. cannabis market.

What business is Aurora in: recreational or medical?

Aurora is active in both the medical and recreational marijuana markets. Within Canada, Aurora has a medical cannabis business, but is also growing its recreational capacity ahead of legalization. Like all Canadian producers, its international business is focused on medical pot.

Intellectual property

Aurora does not disclose how many patents it has obtained or how many are in the works. The company says it’s interested in four main areas of research and development: analytical science related to cannabinoid and terpene profiling, plant science, clinical studies including cannabinoid applications, and clinical science.

More marijuana stocks to watch: Canopy Growth is the cannabis business’s $4 billion gorilla

Supply agreements

The company says that it has signed supply agreements with every Canadian province and territory, representing 98% of the population. It does not have deals with New Brunswick or the Nunavut territory.

One of the company’s key initiatives for adult recreational use is its retail plans for Alberta. Via its investment in Alcanna Inc., the largest private liquor retailer in the country, the company plans to sell pot in the 37 stores Alcanna plans to open in Alberta — the maximum amount allowable by law in the province — and to pursue retail sales in Ontario. Ontario has said federally licensed producers are allowed to open a single retail location in the province, as part of regulations unveiled in September.

More marijuana stocks to watch: GW Pharma is a drugmaker that grows its own cannabis plants

Aurora currently has operations in several European countries such as Germany and Italy, as well as medical marijuana operations in Colombia, through its acquisition of MedeReleaf. It has also exported medical products to Australia, and has invested in Cann Group, a local medical producer.

How much weed does it grow and at what cost?

As of September, Aurora said it can grow an annualized run rate of 45,000 kilograms of pot a year. The company sold a total of 5,022 kilograms during fiscal 2018, up from 2,382 kilograms in 2017; Aurora produced 5,632 kilograms in the year, up from 3,037 kilograms in 2017.

For the fourth quarter, Aurora’s net selling price of dried cannabis equivalent per gram was C$8.02, up from C$7.30 in the year-ago quarter. It sold pot oil for C$13.52 a gram, up from C$12.83 in the year-ago period.

More marijuana stocks to watch: Aphria is positioning itself as a low-cost pot producer

Aurora’s cash costs for dried cannabis were C$1.87 per gram in the fourth quarter, up from C$1.80 per gram in same period last year. Oil cost C$1.70 up from C$1.53.

How much pot can it eventually grow?

According to its latest quarterly report, the company says it expects to be able to grow 100,000 kilograms of pot a year by the end of 2018, and is aiming for a 150,000-kilogram run rate. In the future, the company expects to be able to grow over 500,000 kilograms a year.

Aurora’s U.S.-listed shares have gained 50.4% in 2018, while the S&P 500 SPX, +2.15%  has gained 3% and the Dow Jones Industrial Average DJIA, +2.17%  has added 2.4%.

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