Aurora Hashish (ACB 0.34%)
Q1 2024 Earnings Name
Aug 10, 2023, 5:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Greetings and welcome to the Aurora Hashish Inc.’s first-quarter 2024 outcomes convention name. All members shall be in a listen-only mode, and a question-and-answer session will observe the formal presentation. This convention name is being recorded right now, Thursday, August tenth, 2023. I might now like to show the convention over to your host, Ananth Krishnan, vp, company improvement and technique.

Please go forward.

Ananth Krishnan — Vice President, Company Improvement and Technique

Thanks, Michelle. We respect you all becoming a member of us this afternoon. With me right now are our CEO Miguel Martin, and CFO Glen Ibbott. After the market closed, Aurora issued a information launch asserting our fiscal 2024 first-quarter monetary outcomes.

This information launch, accompanying monetary statements, and MD&A can be found on our IR web site and can be accessed through SEDAR and EDGAR. As well as, you can see the supplemental data deck on our IR web site. Listeners are reminded that sure issues mentioned on right now’s convention name may represent forward-looking statements which might be topic to sure dangers and uncertainties associated to our future monetary or enterprise efficiency. Precise outcomes may differ materially from these anticipated in these forward-looking statements. The dangers — threat elements which will have an effect on precise outcomes are detailed in our annual data type and different periodic filings and registration statements. These paperwork could equally be accessed through SEDAR and EDGAR.

Following ready remarks by Miguel and Glen, we are going to conduct a question-and-answer session with our masking analysts. We ask you to restrict your self to at least one query and one follow-up earlier than going again into queue. With that, I’ll flip over the decision to Miguel. Please go forward.

Miguel Martin — Chief Govt Officer

Thanks, Ananth. Aurora right now is a differentiated and diversified firm with a number one world hashish platform and a number one North American plant propagator. In hashish, we’re medical first and a frontrunner in that enterprise the world over. In plant propagation, we’re one of many prime firms working essential infrastructure within the managed surroundings agricultural {industry}. We’re very pleased with the report quarter we simply delivered.

We generated the most important adjusted EBITDA we have ever achieved, and income and adjusted gross revenue on the highest degree Aurora has reported in three years. However be assured, we’re not resting right here. We’re pushing more durable than ever to carry our diversified operations to free money stream technology. Let me step again for a minute and have a look at an even bigger image with you. Subsequent month marks my third anniversary as CEO of Aurora.

Throughout these three years, we have undertaken a really centered and purposeful transformation. One, we reset our operational footprint and price construction. We’re centered on leveraging our industry-leading science and cultivation experience to provide a few of the world’s most revolutionary merchandise and high-potency cultivars. These next-generation cultivars are routinely producing 28% THC and better efficiency, with 43% better yields and 26% value per gram discount in comparison with our legacy cultivars. And we anticipate to proceed to enhance sooner or later.

Two, we lowered our SG&A bills whereas concurrently augmenting our CPG and pharma expertise in each our management and our working employees. During the last three years, quarterly SG&A has been taken down by 50%, however we retain essential expertise and invested in skilled and agile new recruits. We’re very pleased with how our high-performing group can collaborate and execute. Three, we rededicated ourselves to the market. We have at all times been leaders in medical hashish each in Canada and globally. We invested in know-how, expertise, product choice, and affected person expertise with over two occasions the medical market share of our nearest competitor in Canada and management positions in Germany, Poland, the U.Ok., and Australia.

We succeed the place others do not due to the excessive boundaries to entry and our world-class cultivation and manufacturing. We have been leaders in Germany since 2017 and considered one of solely three firms with German manufacturing services. We proceed to take a position and help the European medical hashish with an on-the-ground group in Germany, Poland, the U.Ok., and elsewhere. 4, we acknowledge the necessity to diversify our income and money stream base past hashish. Whereas the case for world hashish is a really bullish one, the timing of regulatory change can generally be troublesome to pinpoint. We discovered our first adjacency within the infrastructure-like {industry} on plant propagation.

Over the long-term, plant propagation in hashish, as in each different agricultural {industry}, will turn into an vital a part of the worth chain. However within the meantime, our controlling curiosity in Bevo is anticipated to offer free money stream development and publicity to a essential infrastructure-like asset class that almost all public market buyers can not get publicity to. The tailwinds for the managed surroundings agricultural {industry} embody onshoring the meals provide, provide chain uncertainty, and decreasing our meals’s carbon footprint. All of those are compelling long-term value-creation attributes we anticipate to accrue to Aurora shareholders. Along with the optimistic macro tailwinds, we see a path for Bevo to double its income and money stream over the following two to 3 years via using our underutilized hashish services, Aurora Sky, which is properly fitted to the orchid enterprise.

A market phase prepared for provide chain disruption, prefinished orchids in North America are primarily sourced from abroad with the attendant prices and high quality points that brings. However the capital required to construct a extremely managed surroundings to develop orchids in North America is a barrier. And for Bevo, lots of their orchid clients would be the similar blue-chip retailers that they’ve already served for years. We anticipate our first gross sales of orchids earlier than the tip of this calendar yr with calendar 2024 representing a step perform change in Bevo’s income and EBITDA technology because the orchids marketing strategy hits a gradual state. And now Aurora Solar.

With some development capital, which shall be totally funded from a dedicated financial institution facility, this one 1.6 million-square-foot greenhouse in Southern Alberta will tremendously develop the attain of Bevo to the farmers and greenhouse operators of Alberta and the American Midwest. And eventually, our steadiness sheet, the place over three years, we have now lowered our convertible debt from 531 million to roughly 63 million as of right now, demonstrating that prudent fiscal administration and deal with money and money stream are prime priorities for the corporate. In fact, I am very pleased with our group and our success to this point, however as I stated earlier, we’re simply getting began. On the highest line, we see a path to rising our enterprise throughout all markets that we function in. Funding and innovation is important to our success.

And we plan to introduce roughly 75 new merchandise to the Canadian market within the coming three quarters with the best-performing cultivars and extract merchandise being launched to our worldwide channels. Now we have the chance to earn income in Canadian grownup use via our upcoming product launches. And with our continued drive to put money into environment friendly cultivation and manufacturing, we see alternatives for our Canadian grownup use enterprise to maneuver to profitability. Our Canadian medical enterprise continues to learn from our broad and engaging product assortment and the superb affected person expertise we ship. With disruption within the Canadian market, we imagine Aurora’s No.

1 place within the medical market leaves us properly positioned to assemble enterprise from different medical LPs in Canada. Our confirmed next-generation cultivars that we’re launching throughout Europe and Australia are proving themselves to be in style with sufferers. Proper now, with the merchandise we have now taken to market up to now three months, we have now extra demand than we have been capable of provide in Europe and Australia. In an {industry} challenged by extra provide, we’re excited by this enviable place.

And with current modifications to our provide chain, we expect we are able to deal with this growing demand. When talking of Europe, I ought to observe the possibly optimistic regulatory modifications we’re seeing there. Germany, particularly, has quite a bit happening. Now we have a wonderful group on the bottom in Europe, together with one of many prime regulatory advocates within the {industry}. We’re very supportive of the course the federal government is shifting in.

With the potential for de-scheduling of hashish from the narcotics record within the close to future, the German medical market has the potential to develop in dimension considerably, and naturally, France the place a medical hashish pilot program is anticipated to wrap up early subsequent yr and a full medical hashish system is anticipated to be carried out. We’re happy to be the only flower provider to the pilot trial, and when the market unfolds, we anticipate to be a key participant. It must be clear that our regulatory experience, backed by our unwavering dedication to science, breeding, and genetics, units us aside and positions us to win in new medical and leisure markets once they open. Under the income line, the intersection of our cultivation science, deal with operational experience, and environment friendly EU-GMP services continues to drive our value per gram and per unit prices decrease. And naturally, we’re dedicated to assembly our ongoing value optimization targets.

We talked final earnings name a couple of additional $40 million of annual financial savings, which is progressing properly, and we anticipate to see the impression of those reductions totally via the again half of this fiscal yr. I am positive that our monitor report on top-line execution and expense administration ought to give everybody confidence that we are going to generate optimistic free money stream in calendar 2024. It is really an thrilling time for Aurora, our shareholders, and our workers. And with that, I might now like to show the decision over to Glen for an in depth monetary evaluate.

Glen Ibbott — Chief Monetary Officer

Thanks, Miguel, and hiya, everybody. Earlier than my remarks, as a reminder, final yr, Aurora modified its fiscal year-end to March thirty first, so the interval ended June thirtieth, 2023 that we’re reporting on marks our first quarter of fiscal 2024. Aurora reported a powerful quarter in Q1. In medical, our worldwide enterprise continued to develop properly as demand for our merchandise are outpacing provide. And Canadian medical delivered yet one more strong quarter of significant income and gross revenue.

In client, our enterprise was up yr over yr, down solely barely sequentially regardless of the halt in our in style Glitches product. And eventually, Bevo had its greatest quarter to this point in our plant propagation enterprise unit. I am additionally very completely satisfied to report that, together with good traction on our prime line, we delivered the very best adjusted gross revenue we have had in three years. And we’re on monitor to generate the additional value efficiencies we have mentioned, which is able to scale back money outlays with out impacting development alternatives in our enterprise. So, add all of it up and we delivered our third consecutive quarter of optimistic adjusted EBITDA, a report for us at $2.2 million.

So, our Q1 ends in extra depth. Web income was $75.1 million, in comparison with $50.1 million within the year-ago interval. We noticed development throughout all enterprise models, together with report income at Bevo, which we acquired in August of 2022. Our world medical hashish enterprise generated $41.6 million in income at a 61% adjusted gross margin. Extra particularly, worldwide medical income is $16.2 million, up 40% from final yr, and Canadian medical hashish was $25.4 million, up 2% yr over yr and 5% sequentially.

The robust efficiency in our highest-margin channels was resulting from a number of elements, together with the optimistic market response in Europe to our new Canadian-grown, high-potency cultivars, driving our greatest quarter of European income ever with report quarters for us in Germany and Poland; the continued development of the Australian medical market, the place we additionally had our greatest quarter ever as gross sales in that market, greater than offsetting the $1 million of Israel income from final quarter that didn’t repeat in Q1; and naturally, our deal with supporting and rising gross sales to insured affected person teams in Canada. Q1 adjusted gross margin for medical hashish was 61%, inside our goal vary of 60% and above and constant sequentially. Nonetheless, it was down from 67% a yr in the past, as Q1 income combine contained extra quantity to sure worldwide bulk export markets that produced a barely decrease adjusted gross margin. So, as typical, pushed by our management and world medical markets, our medical hashish enterprise represented about 75% of our Q1 hashish income and 88% of adjusted hashish gross revenue, an vital distinction from our friends. Shopper hashish web income is $13.2 million, up 5% from a yr in the past as we proceed to drive new and revolutionary merchandise to all of our markets.

We have been happy with this efficiency, notably provided that we solely had a partial quarter of gross sales in Q1 of the favored large-pack Glitches previous to the Well being Canada industrywide halt on sure ingestible extract merchandise. That stated, we have now a powerful product pipeline with compelling new improvements deliberate for launch in late Q2. So, we anticipate to beat the lack of large-pack Glitches income as we enter Q3. Adjusted gross margin within the client channel was 27%, in comparison with 26% within the prior-year quarter, however the distinction pushed primarily by increased effectivity, cultivation, and manufacturing.

In our plant propagation enterprise, Bevo contributed $19.9 million in web income, an 85% improve sequentially. This displays the seasonal cadence of the enterprise, and it displays overperformance within the quarter. There was no income from Bevo within the year-ago comparative quarters we have not but accomplished the acquisition. Plant propagation adjusted gross margins have been 22%, down sequentially from 36%, as anticipated, as a result of combine and annual timing of vegetable and decorative plant gross sales.

Adjusted SG&A was properly managed at roughly $29.5 million, reflecting our dedication to holding SG&A at or beneath $30 million. And as we have mentioned beforehand, as a part of our push for one more $40 million in annualized value financial savings, we have now already taken actions that may scale back SG&An additional. We anticipate these financial savings to start to indicate up in Q2. Trying ahead, we anticipate Q2 hashish web income to be largely comparable — much like fiscal Q1 with the geographical combine weighted barely extra towards the worldwide medical phase. And for plant propagation, we anticipate to see lowered revenues and gross revenue resulting from seasonality. Usually, Bevo earns about 25% to 35% of annual revenues within the second half of the calendar yr, our fiscal Q2 and Q3.

That stated, as we speed up Bevo’s marketing strategy, we anticipate first gross sales of orchids from the 800,000-square-foot Sky facility to happen in Q3 of this fiscal yr, and gross sales from the 1.6 million-square-foot Aurora Solar facility to start within the first half of our subsequent fiscal yr. So, we’re excited in regards to the reliable, but quickly rising, contribution and diversification that the plant propagation platform brings to our firm. Now turning to money flows in our steadiness sheet. We’re on monitor to satisfy our goal of optimistic free money stream in calendar 2024. In actual fact, we made quite a lot of progress in Q1.

Our operations used a web $11.2 million, down 58% from the year-ago interval. Driving this enchancment have been our actions to shut less-efficient operations and to produce our finish markets from Aurora’s cost-effective, high-quality Canadian EU-GMP manufacturing services. In Q1, we closed our Aurora Nordic facility and our U.S. CBD enterprise, and we determined to promote a European R&D facility. These actions will positively impression money flows and margins within the second half of our fiscal yr by a minimum of $16 million of annualized financial savings.

We have additionally taken a variety of additional cost-reduction initiatives and operations in SG&A throughout Q1. And people annualized advantages of roughly $24 million ought to begin to present up in Q2 and be totally realized within the second half of this fiscal yr. I ought to observe that Q1 money flows did embody funds for a number of restructuring initiatives together with contract terminations and severance. We do anticipate extra of this in Q2, however it ought to turn into a lot lighter after that as we full the restructuring actions we have already introduced. And naturally, we have been diligently caring for the convertible debt steadiness.

Throughout Q1 and shortly afterward, we bought $83.5 million of our convertible senior notes at a mean 2.24% low cost to par worth for combination money consideration of roughly $62 million and the issuance of 28.9 million frequent shares. Presently, we have now roughly $63 million of convertible debt remaining, and we’ll have all of it settled throughout the subsequent seven months. As at July thirty first, we’re more than happy to have roughly $214 million of money and money equivalents, which is greater than adequate to fund operations till we attain optimistic free money stream. So, to sum up, during the last three years, Aurora’s monetary metrics have gotten higher and higher pushed by a diversified world enterprise, delivering reliable income and powerful gross revenue. We have additionally — we have additionally strengthened our steadiness sheet, rationalized our value construction, and we imagine we’re ideally positioned to benefit from development alternatives throughout our enterprise models. Thanks in your curiosity.

I am going to now flip the decision again to Miguel.

Miguel Martin — Chief Govt Officer

Thanks, Glen. We have now generated optimistic adjusted EBITDA for 3 consecutive quarters and set an organization report for adjusted EBITDA in Q1. Trying forward, whereas there could also be some volatility between any three-month interval, we have demonstrated that we’re properly on the trail to free money stream over the long run. We have already differentiated ourselves from others within the hashish {industry} via our management in world medical hashish, which incorporates higher-potency cultivars with robust gross margins and main market share positions in Canada, Europe, and Australia. This has been supported all alongside by our innovation and improvement of high quality merchandise for a loyal affected person base, and we have now added a complementary development channel via Bevo, which is able to play a extra impactful half in our total enterprise within the years forward. We view the synergies between these companies as compelling.

We then mix these top-line alternatives with vital working efficiencies that we’re embedding inside our group via substantial value discount. Our goal of eradicating an extra $40 million of prices throughout fiscal 2024 is bold. However when contemplating how a lot we have already achieved via our enterprise transformation, it’s totally inside our wheelhouse. Our steadiness sheet additionally offers us with assets to be focused and opportunistic within the midst of fast {industry} rationalization. Briefly, we have now the capital, plan, and endurance to create worth for our shareholders as we construct a world-class firm. Thanks in your time and curiosity in Aurora.

Operator, please open the traces for questions.

Questions & Solutions:

Operator

Thanks, girls and gents. We are going to now start the question-and-answer session. [Operator instructions] Your first query comes from Vivien Azer of Aurora Hashish. Please go forward.

Robin Holby — TD Cowen — Analyst

Hello. Good night. That is Robin Holby on for Vivien Azer of TD Cowen, and thanks for taking the query.

Miguel Martin — Chief Govt Officer

No drawback.

Robin Holby — TD Cowen — Analyst

Yeah, I hoped — in the event you may probably add some coloration to the expansion that you simply’re seeing in Australia and whether or not or not this market is accretive to your total worldwide medical hashish phase gross margin.

Miguel Martin — Chief Govt Officer

Yeah, pay attention, it is an incredible query. Now, firstly, let me say that the, , conventional syndicated information on market dimension, market shares that you’d see, , say, in Canada on the medical enterprise doesn’t exist in Australia. So, the numbers I will give you might be directional and, , for that. So, let me discuss market dimension and let me discuss the place we sit, after which I am going to let Glenn type of take the secondary query you had on margins. We imagine that, right now, the Australian enterprise is about the identical dimension because the Canadian medical enterprise, which is about $400 million of annual producer income. Now, there are, , a few other ways to have a look at that.

Now we have a accomplice in that enterprise referred to as MedReleaf Australia, and so they have an incredible gross sales group led by, , an exquisite gentleman who’s an ex-pharmacist. We see the Australia market rising in a short time. You already know, they, at this juncture, do not have quite a lot of the extra frequent codecs that you simply may see, say, pre-rolls and different types of extracts and different markets. However we’re actually enthusiastic about that market and the expansion, and it has been, from a income standpoint, a development market from us. Now, from a margin standpoint, I am going to let Glen provide you with some extra particulars.

Since we aren’t, , totally built-in there as we is likely to be in different markets, the margins for us are just a little bit decrease, say, than they might be in Germany or Poland or different European markets. Glen?

Glen Ibbott — Chief Monetary Officer

Yeah, that is precisely proper, Miguel. And so, the best way I have a look at it’s, it could be, as we mix extra Australian income into our worldwide gross sales, that the share gross margin comes down. However that is completely all incremental gross margin {dollars} for us. So, it is an vital half, I feel, of the — the expansion that we’re seeing throughout the globe in medical hashish.

Miguel Martin — Chief Govt Officer

I assume the one different level I am going to make is that it’s, as soon as once more, a market that requires an EU-GMP certification, which is de facto turning into some extent of differentiation, not solely having high-quality merchandise, but additionally having the ability to maintain as much as that normal. And we have now, , a reasonably vital quantity of EU-GMP manufacturing at an actual prime quality in our Canadian services, which supplies us quite a lot of synergies and efficiencies to have the ability to make the most of these services to ship to, say, Germany, Poland, and clearly, Australia, as we’re speaking about.

Operator

Thanks. The subsequent query comes from Michael Lavery of Piper Sandler. Please go forward.

Michael Lavery — Piper Sandler — Analyst

Thanks. Good night.

Miguel Martin — Chief Govt Officer

Good night, Michael.

Michael Lavery — Piper Sandler — Analyst

I simply was curious, you have — in your medical hashish dialogue, you talked about the momentum for additional bettering margins over the course of the yr. Perhaps may you give a way of the magnitude of that? And is that separate from the associated fee financial savings you have recognized simply by way of combine enchancment and another issues? Or is that partly pushed, or perhaps even very a lot pushed, by the $40 million of financial savings you have recognized?

Miguel Martin — Chief Govt Officer

Yeah, Michael, it is truly can be, , incremental to that. And so, the vast majority of the development would be the transition of servicing the European market from the Canadian services. And so, , beforehand, these markets have been being serviced by our Nordic facility, and, , the margins are, — , fairly considerably increased as we service that, , merchandise from Canada. Gen, I imply, do you need to give some type of — I imply, I do know you might have factors on timing and scale.

You need to cowl that piece of it?

Glen Ibbott — Chief Monetary Officer

Yeah, completely. Michael, it is an incredible query. There’s quite a bit happening there. So, as we carry the cultivation again to Canada, we’re very environment friendly producers right here in Canada, however we’re additionally launching a variety of the newer cultivars.

There’s some that launched final quarter, and we have some extra arising which might be — , had a few of the stats. And by way of effectivity and price effectivity, these actually drive the margin for us, getting these a lot increased yields than the legacy cultivars and can assist us on the margin aspect. After which, when — , in order that’s additionally true for Australia, the place we’re seeing a few of the newer cultivars actually beginning to take up there. And we have additionally made another modifications inside the best way we supply a few of the flower and the way we allocate far between our channel that ought to drive these worldwide margins up over the course of the yr. So, , by way of magnitude, , I assume we’re — we’ll must see how that performs out By way of timing as a result of, proper now, we have nonetheless bought just a little little bit of Nordic product that we’re pushing via in Q2. However I anticipate, by the point we get to Q3 and This autumn, we’ll see the complete impression of sourcing from Canada, which goes to be a minimum of 10 factors of margin, maybe higher.

Michael Lavery — Piper Sandler — Analyst

OK, that is actually useful. And simply to observe up on Bevo, I do know you did not personal the enterprise, however — however I must think about your due diligence would have given you a way of what its year-ago revenues would have been. Are you able to give us a way of simply the way it in contrast even when it was from the prior house owners to this quarter?

Glen Ibbott — Chief Monetary Officer

Yeah, we — we truly — in our press launch, we had deliberate propagation income up, I feel it was 12%, 14%. That was versus the year-ago interval once they owned it. So, simply sort of an apples-to-apples comparability. They’re operating at about 40 million bucks once we purchased them.

They’re up above in all probability within the high-40s now. And which may provide help to just a little bit if you consider how the following couple of quarters — you possibly can mannequin the following couple of quarters of the place we expect often sort of that 25% to 35% of the annual income exhibits up over the following two quarters. You already know, run fee proper now might be within the $45 million to $50 million vary.

Michael Lavery — Piper Sandler — Analyst

OK, nice. Thanks a lot.

Glen Ibbott — Chief Monetary Officer

Yeah.

Miguel Martin — Chief Govt Officer

Thanks, Michael.

Operator

Thanks. The subsequent query comes from Frederico Gomes of ATB Capital Markets. Please go forward.

Eric Livshits — ATB Capital Markets — Analyst

Hello, that is Eric Livshits in for Frederico Gomes. Thanks for taking my query. So, over the previous a number of quarters, you guided for adjusted SG&A to stay beneath $30 million, which you have clearly met. So, simply to verify, is that this nonetheless the goal shifting ahead, and sort of how are you simply eager about SG&A spend from right here? Thanks.

Miguel Martin — Chief Govt Officer

So, let me — I am going to speak a bit, , prime line. I am going to let Glen provide you with, , perhaps a few of the modeling questions which might be, , Eric, what you are in search of. You already know, once we have a look at SG&A, there’s clearly some baseline. What’s attention-grabbing in regards to the SG&A is that, once we see these efficiencies round cultivars, , in some instances being to 2x the yields, , per sq. meter, you do not see a giant bounce up in SG&A.

So, you are capable of develop, , your prime line and, as Glen talked about, enhance your margins with that over — total SG&A line. We — , that quantity being beneath 30, we nonetheless assume is about proper. We’re making vital investments in R&D science, innovation. And we’re servicing, , broader markets we simply introduced on Switzerland and Austria based mostly on that very same SG&A footprint. So, you might be seeing a little bit of development within the prime line with that very same quantity. So, we do see some effectivity there.

However, Glen, perhaps you need to perhaps go additional on that for Eric.

Glen Ibbott — Chief Monetary Officer

Yeah, completely. I imply, a part of the technique right here is to get that SG&A right down to a degree that we expect is secure and supportive of the expansion of the enterprise after which maintain, proper, in order that we are able to get that scale and that leverage off of that SG&A base. There may be at all times just a little little bit of SG&A that is pushed by the income, the volumes, whether or not gross sales commissions or what have you ever. However for probably the most half, quite a lot of our SG&A, I sort of name it just a little bit mounted, if you’ll, provided that we have now investments as being a U.S.-listed public firm, and many others., and many others. So –so, we have nonetheless bought a couple of million bucks extra to take out of it.

We’re — , our goal of holding it beneath $30 million as we define a few of these value financial savings over the following yr will scale back that and — and take it down additional beneath 30 million. And we should always — as I say, we must be seeing these exhibiting up over the following couple of quarters, these financial savings.

Eric Livshits — ATB Capital Markets — Analyst

Nice. Thanks.

Miguel Martin — Chief Govt Officer

Thanks, Eric.

Operator

Thanks. The subsequent query comes from Matt Bottomley of Canaccord Genuity. Please go forward.

Yewon Kang — Canaccord Genuity — Analyst

Hello, that is Yewon Kang on for Matt Bottomley. Thanks for the query. So, I wished to show the main target again to Australia for my query. Currently, there’s been quite a lot of media stories indicating that the Greens get together within the nation have been attempting to legalize hashish for leisure functions.

I assume I simply need to get your guys’ ideas on the way you’re viewing these headlines coming in a foreign country proper now. And is there any additional room for development by way of, , getting into the leisure market, , in partnership with MedReleaf or another avenues sooner or later?

Miguel Martin — Chief Govt Officer

Yeah, it is an incredible query. So, let me — let me take it in type of three components. The primary half is, , we, , make investments fairly extensively in authorities relations, and we imagine we have now a very good relationship with the TGA, which is the regulatory authority there, plus elected officers. What we’re listening to is, on leisure, regardless that there’s been some headlines in regards to the Inexperienced Celebration, it is a methods off.

So, it is probably not actionable proper now. Secondly, what we see in Australia is much like what we see in Canada and different markets is that it is the similar regulatory companies and validation. So, the manufacturing, the packaging, the labeling, the advertising, all may be very comparable. So, as we have at all times stated, excellence in medical is clearly a major benefit at a time by which rec is shifting ahead. Now lastly, the medical market, we nonetheless see upside for the general dimension of the medical market in Australia. There may be many, , quite common codecs that aren’t obtainable in Australia, , extracts, edibles, pre-rolls, that may have a large impression on that affected person base.

Secondly, there’s a very attention-grabbing legislation in Australia that is very punitive about working a motorcar with any presence of hashish or cannabinoids in your system that they are engaged on proper now. And I do know it looks as if a nichey little legislation, but when that have been to vary, and we expect there is a good likelihood it’s going to, that may actually open up a bigger affected person base. After which, we’re additionally seeing an enlargement within the reimbursement mannequin. And so, I do not need to predict what a $400 million annual run fee will go to, however we do see quite a lot of upside in Australia. And we additionally see it as a consolidated piece of enterprise. Once more, this indicated that information just isn’t completely correct, however it does seem that the highest three firms in Australia, which MedReleaf is one, symbolize, , over half of the full enterprise.

So, it is a bit dissimilar than different markets the place you see quite a lot of — , we do not see quite a lot of focus.

Operator

Thanks. The subsequent query comes from John Zamparo of CIBC. Please go forward.

John Zamparo — CIBC World Markets — Analyst

Thanks. Good night. My query can also be on — on Australia. So, I am hoping we may go a bit deeper on this.

And if we rewind a few years, Israel was thought-about a very engaging market, and a number of LPs raced towards it. It turned saturated and home producers took share as properly. So, I ponder in the event you may discuss how sustainable the expansion is in Australia and what elements will make this totally different. Is there something holding these prime three suppliers on the prime? Are there any boundaries to entry that you could converse to? Another coloration can be useful.

Miguel Martin — Chief Govt Officer

Positive, I imply, John, it is an incredible query. So, in the event you return in time on Israel, , firstly, you might have a major distinction within the dimension of the inhabitants and, subsequently, the affected person base. So, the potential dimension of the pie in Australia goes to be larger than what you might have in Israel. Secondly, in Israel, , the regulatory course of was very fluid. And also you noticed the begins and stops as that company was seeking to actually decide, , what have been going to be the import standards, the testing standards.

And right now, they use an ordinary referred to as CUMCS that’s fairly a problem. And so, if you couple that with a — additionally a little bit of a regulatory problem within the variety of pharmacies and shops whereas they’ve grown, nonetheless type of created an total course of. Australia feels totally different. And I do not need to, , predict as issues are so dynamic, however I might say Australia, , is type of totally different in 3 ways. First is the scope.

You already know, $400 million of annual income is greater than, , Israel ever was, and that additionally seems to be rising. Secondly, the TGA has established fairly frequent requirements, and so they mirror, in virtually each case, EU-GMP. So, that, , creates a little bit of a special state of affairs. And third is, a minimum of right now, imported flower has the overwhelming majority of the enterprise versus, , domestically grown flower. So, , I do not — , we have been a, , robust proponent of what is occurring in Israel, and we’re clearly a giant participant in Australia.

I feel I really feel extra bullish on what’s occurring in Australia, however issues can change. And I feel a very powerful factor for us has been our means to adapt and achieve success in all these markets. And so, we have now a management place in Germany, in Poland, in Czech Republic. You already know, we’re moving into in Switzerland and Austria. And so, I feel, , there are quite a lot of commonalities of being profitable. And when one door closes, it seems one other one’s going to open, and, , you might have to have the ability to benefit from it.

And proper now, Australia is a good marketplace for high-quality flower notably, which is why I feel you see the market focus.

John Zamparo — CIBC World Markets — Analyst

That is — that is actually useful. Thanks. And if I may observe up with one others — one different, I am curious to get your view on the court docket ruling yesterday on chewable extracts and Well being Canada’s place.

Miguel Martin — Chief Govt Officer

Yeah, I imply it was a — it was an attention-grabbing ruling. I imply, mainly, the query was type of twofold. One was would the keep be lifted on a specific product, and secondly, , was there a chance within the course of. And I assume let me — let me begin by saying, , it is very simple to be essential of Well being Canada, , in regards to the present hashish state of affairs in Canada. We’re not a type of firms which might be essential.

You already know, if we glance all over the world, with the progress that Canada has made and the scale of the market and the predictability of the method, we’re appreciative of it. So, that is been kicked again. That call, , has been kicked again to Well being Canada to see if there are alternatives in that itemizing course of. That was not, , litigation that we introduced or a query we introduced. So, I feel it is clearly, , a greater place to a special, , firm.

That being stated, , we look ahead to working with Well being Canada. We additionally take part in {industry} teams as this total progress, , strikes ahead; and clearly the 10-milligram restrict. And the, , designation of that, , extract — ingestible extract, we expect, is a crucial one to permit licensed producers, , to take part in that market as a result of it is clearly a giant market.

John Zamparo — CIBC World Markets — Analyst

Nice. I respect the colour. Thanks very a lot.

Miguel Martin — Chief Govt Officer

All proper, John. Thanks.

Operator

Thanks. There are not any additional questions. I’ll flip the decision again to Miguel Martin for closing remarks.

Miguel Martin — Chief Govt Officer

Effectively, pay attention, we’re clearly thrilled with this quarter and actually pleased with all of the arduous work. I need to thank all of our group members at Aurora. They’ve performed an unbelievable job throughout all of our 4 companies. You have seen the outcomes.

We actually do respect, , your help and your curiosity in our enterprise and this {industry}. It is thrilling occasions, and, , we’re happy to have the quarter we did. And we look ahead to speaking to all of you sooner or later. Thanks a lot and have an incredible night.

Operator

[Operator signoff]

Period: 0 minutes

Name members:

Ananth Krishnan — Vice President, Company Improvement and Technique

Miguel Martin — Chief Govt Officer

Glen Ibbott — Chief Monetary Officer

Robin Holby — TD Cowen — Analyst

Michael Lavery — Piper Sandler — Analyst

Eric Livshits — ATB Capital Markets — Analyst

Yewon Kang — Canaccord Genuity — Analyst

John Zamparo — CIBC World Markets — Analyst

Extra ACB evaluation

All earnings name transcripts