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Written by
Jim Bloom
Published on
October 10, 2017
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We note that AURORA CANNABIS IN COM NPV OTCMKTS:ACBFF) has returned more than 18% to investors since we last published our coverage of the stock on September 11. Over the last three months, ACBFF has rewarded holders of the stock with a return of more than 55%. We see more compelling upside potential in the stock and that’s why we need to talk about ACBFF again.We’ll get into the details in a short while, but first take a look at ACBFF’s share price action below. ACBFF Daily ChartBusiness and industryFor the sake of our readers who are getting to know ACBFF for the first time, we’ll briefly review the company’s business model. ACBFF is a Canada-based company and a participant in the regulated or legal cannabis industry. The company’s wholly-owned subsidiary Aurora Cannabis Enterprises is a licensed producer of cannabis for the medical market under Canada’s medical cannabis regulations. In additional to medical marijuana/cannabis, Canada is also on track to open its market for recreational cannabis by July 2018. ACBFF is preparing to participate in Canada’s recreational cannabis market as well.It’s important to note that while ACBFF is based in Canada, the company is doing business worldwide as it has footprints in Europe, Australia and continues to pursue opportunities in other global markets.Recent developmentsIn our last coverage of ACBFF, which you can read here, we saw how the company was busy building its top management team to enable it to execute on its growth strategy with discipline and speed. A lot has transpired in and around ACBFF since we last covered the stock, and we appreciate the efforts the management is making to communicate the progress in the company. We’ve taken note of a few intriguing developments at ACBFF that we want to discuss in a little more detail so you can recognize what the future might be holding for this stock.We looked at ACBFF’s latest quarterly financial report that came out a few days after our September 11 article and we were impressed. For fiscal 4Q17 (June quarter), ACBFF generated revenue of $5.9 million, implying an increase of 387% over a similar quarter last year.While we appreciate the robust revenue growth, it is the factors that underpinned the growth that we found most exciting. The revenue growth was primarily supported by increase in the number of customers served and an increase in the average selling price of ACBFF’s products to medical cannabis market.On the side of customer growth, which in medical cannabis market they describe as patients, ACBFF said that its customers were more than 20,000 active and pending registered patients at the end of the June quarter. As for the prices, the company said that it sold dried cannabis and cannabis oils at an average price of $7.45 per gram, compared to $6.09 per gram in the year-ago quarter. The company also sold significantly more dried cannabis and cannabis oils in the latest quarter than in the year-ago period.ACBFF’s progress was remarkable, especially considering that the company continues to sell more volumes of cannabis at higher prices despite the competition in its domestic market where more cannabis producers are being licensed to operate. This implies that ACBFF has positioned itself as a credible cannabis producer and this is helping it to beat competition.Commenting on the remarkable fiscal 4Q17 growth, Terry Booth, the CEO of ACBFF, stated:

"Aurora's story has been defined by agility, innovation and disciplined execution, achieving unprecedented growth in customers, revenue and shareholder value, and consistently validating our aggressive business strategy to build a globally dominant cannabis company."

SourceWhen we studied ACBFF’s detailed financial report and operational update for fiscal 4Q17 and fiscal full-year 2017, we recognized that ACBFF is not demand constrained, but capacity constrained. In other words, demand is not a problem for ACBFF. The problem is producing enough to meet the strong demand for the company’s cannabis products. This is why the company is busy expanding its production capacity.ACBFF is underway with the construction of its 800,000 sq. ft. Aurora Sky facility, which is located at the Edmonton International Airport in Alberta. The strategic location of Aurora Sky means that it is an ideal facility to support ACBFF’s domestic and international distributions. ACBFF expects to start planting cannabis in the completed portion of the Aurora Sky facility before the end of 2017, so that can make its first harvest from in early 2018. Construction of Aurora Sky is expected to be complete by mid-2018, and the facility is expected to have a production capacity of more than 100,000 kilograms annually. And this will deliver significant economies of scale for ACBFF.As part of the capacity expansion, ACBFF is also nearly complete with the updates at its 40,000 sq. ft. Pointe-Claire facility in Quebec.ACBFF’s aggressive production capacity expansion is partly a response to the strong demand for its products in the overseas markets. According to ACBFF, Germany, the world’s largest federally-legal medical cannabis market, is experiencing a significant shortage of cannabis supply. To take advantage of the strong demand for cannabis in Germany and to position itself for the potentially huge cannabis market in the Eurozone, ACBFF operates a wholly-owned subsidiary called Pedanios in Germany. It has commenced shipment of cannabis products to Germany through this subsidiary.In addition to Europe, ACBFF is positioning itself to ride the cannabis market opportunity in Australia. In Australia, ACBFF holds a 19.9% stake in Cann Group – a rising star in Australia’s medical cannabis industry.ConclusionACBFF finished its fiscal 4Q17 with $159.8 million in cash, which management said should be sufficient to meet all current and planned expenditures over the next 12 months. In our opinion, ACBFF has staying power and we view any pullback in the stock as providing a rare entry opportunity for one of the most exciting companies in the cannabis space.We will be updating our subscribers as soon as we know more. For the latest updates on ACBFF, sign up below!For the full story, check out our complete coverage on ACBFF.Image courtesy of Tweedle Doob via FlickrDisclosure: We have no position in ACBFF and have not been compensated for this article.

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