Aurora Still Faces Black-Market Competition

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Summary

In Canada, over 2/3 of marijuana users buy from an illegal source.

Aurora is lowering their cost per gram which will allow them to become more competitive with the black-market.

Canada will implement the legal sale of edibles and THC-infused drinks, which is positive for Aurora as oil-infused products carry a high margin.

Intro:
According to a recent study conducted by Scotiabank, 71% of Canadian marijuana users purchased their product from an illegal source, but by 2020, they believe this will fall to only 37%. This represents a huge potential for Aurora (ACB) as they will be able to tap into around double the Canadian customers they currently have now. Right now, I believe that users are deciding to buy their products from an illegal source because it is much more cost effective. Aurora is working hard on lowering their cost per gram of weed, and this was seen in their most recent quarter. They slashed $.50 off their production cost from $1.92 to $1.42 which shows their dedication to achieving this goal. Aurora plans on having a cost per gram of under $1, which I believe is achievable. This should then allow them to be able to compete with any illegal source.

Obviously, any illegal operation has the benefit of not adhering to any formal regulation, obtaining permits, or paying taxes. This gives these sellers an inherent advantage over Aurora or any other Canadian distributor.

Why Canada?

I have decided to focus on Canada because it currently stands as Aurora’s biggest sector. They have the benefit of selling both recreational and medical marijuana, unlike in many countries where they can only sell medical. Aurora is reaching out into new markets, but for the foreseeable future, most revenues will be from Canada.

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