As recently as 10 years ago, the idea of recreational marijuana being legalized would have been somewhat laughable. In the U.S. in 2009, just 44% of survey-takers favored the idea of a broad-based legalization, according Gallup, and not a single country in the world had passed a law allowing the consumption of recreational cannabis.
But what a difference a decade makes.
Today, 2 out of 3 Americans support a broad-based legalization of marijuana, with more than 9 out of 10 favoring the idea of physicians being able to prescribe medical cannabis to patients. Further, over 40 countries worldwide have legalized medical pot, with two — Canada and Uruguay — allowing adult-use sales. Canada is of particular interest since it’s the first developed country to give the nod to recreational cannabis…
Aurora’s secret weapon: Its international push
From this game-changing legalization has sprouted a legitimate cannabis business model, of which only a few names have really separated themselves from the pack. One such company is Aurora Cannabis (NYSE:ACB), which is arguably the top pick among millennial investors.
Wall Street and younger investors are being lured to Aurora because of its industry-leading production potential. Although it has a couple of massive organic projects, including a 1.62-million-square foot grow farm in Medicine Hat, Alberta, known as Aurora Sun, and its state-of-the-art, 800,000-square-foot Aurora Sky facility, acquisitions have played an arguably bigger role in capacity expansion. None of these buyouts will prove more transformative than the $2 billion purchase of Ontario-based MedReleaf last July.
But what investors may be overlooking is a strategy component that’s even more important than how much marijuana Aurora Cannabis can produce — namely, the company’s overseas expansion strategy. Right now Aurora has a growing or distribution presence in 24 total countries, including Canada. That’s far and away more than any of its peers. But there are some nuances about its international strategy that you should be aware of.
1. International expansion targets a higher-margin consumer
The first thing you’ll want to know is that Aurora’s push into international markets is all about boosting its long-term operating margins. Whereas most growers are hell-bent on gobbling up as much recreational market share as possible, Aurora Cannabis’ brass has been clear that the company’s focus will be on medical marijuana patients going forward.
In return for giving up on a larger pool of consumers in favor of a smaller group of medical patients, Aurora’s reward is the potential for much higher operating margins. That’s because, according to the fourth-quarter National Cannabis Survey in Canada, medical pot patients use marijuana more frequently than recreational users; buy more often than adult-use consumers; and are far more willing to buy cannabis derivatives, such as oils, which feature higher price points and juicier margins than traditional dried flower.
As noted, while there are two countries that have legalized recreational weed worldwide (and perhaps soon to be three, with Mexico seemingly to be close to legalization), there are over 40 countries globally that have given medical weed the green light. That’s a budding market for Aurora Cannabis to tend to, and…
Continue reading at THE MOTLEY FOOL