How will German legalization affect Aurora?

How will German cannabis legalization affect Canadian licensed producer Aurora?

Aurora Cannabis claims it is the second-largest medical cannabis producer in Germany. With the Germans looking to legalize by the end of the year, many expected big wins for the LP.

However, the German news was not optimal. As German officials bow to pressure from the European Union, the first wave of German legalization will be small, non-profit social cannabis clubs.

That means whatever Aurora was hoping for from Germany’s recreational legalization is now broke.

But where is the big Canadian LP? The cannabis company may have the best record among its Canadian peers, but that’s not saying much.

How will German legalization affect Aurora?

Aurora Cannabis ended the second quarter of 2023 with a net loss of $67.2 million and $310 million in cash. The company has repeatedly defrauded shareholders by raising equity and diluting assets.

The result was a steady decline in share prices. In fact, Aurora Cannabis’ current market cap is $385 million. That’s down 99% from their all-time highs.

So how will German legalization affect Aurora’s stock price? On the surface, a small German effort might seem like bad news. The population of Germany is twice that of Canada. An Aurora presence in Germany could have helped boost revenue.

However, establishing a presence in Germany would have meant investing capital. This raises the question: what capital? Investors must not lobby for another round of dilution.

Meanwhile, Aurora Cannabis is focused on medicinal cannabis products. Where gross margins are higher than in leisure markets.

Aurora Cannabis’ losses over the past four years have totaled $1.2 billion.

Why Germany?

Ever since an act of Canada’s Parliament created licensed producers, they’ve kept an eye on the German cannabis market.

But why? How does German recreational legalization or the current medical market affect Aurora and the other LPs?

On the surface, it’s pure economics. At one point, Germans were paying up to $18 per gram for medicinal cannabis, compared to the $8 average in Canada.

Secondly, as mentioned, Germany has about 46 million more inhabitants than Canada. German insurance claims for cannabis are also more common than in Canada. It’s part of what led to Aurora’s acquisition of Germany’s best-known cannabis distributor.

What about Germany’s pilot project?

Germany will launch a regional pilot program as part of the two-stage legalization plan. In select cities, the government will hire a commercial company to deliver cannabis through dispensaries. This pilot will be a test to evaluate broader commercial sales within the country.

So how will the German Aurora Cannabis legalization pilot play out? Will Aurora be the commercial supplier?

The details of this test pilot program are not yet known. But rest assured that Aurora executives are rubbing their hands.

And can you blame them? They spent millions to conquer the European market.

As previously mentioned, Aurora’s German investments included the acquisition of Europe’s largest medical cannabis distributor, Pedanios GmbH. They have also bought over 3,000 pharmacies.

Aurora has poured significant money into European markets. But given their focus on medical cannabis, it doesn’t seem likely that they would supply recreational cannabis to the Germans.

However, the “public health” model of cannabis legalization is about the sale of pharmaceutical grade cannabis. It could be that the German government, like the Canadian government, considers these medical manufacturers to be commercial suppliers of recreational cannabis.

If true, German legalization could breathe some life into Aurora. German legalization can give the company a second chance it doesn’t deserve.