How Will German Legalization Affect Aurora?

How will German legalization of cannabis affect Canadian licensed producer Aurora?

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

However, German news was less than optimal. With German officials bowing to European Union pressure, the first wave of German legalization will be low-scale, nonprofit social cannabis clubs.

Meaning, whatever traction Aurora hoped to get from Germany’s recreational legalization is now bust.

But where does that leave the large Canadian LP? The cannabis corporation may have the best balance sheet among its Canadian peers, but that’s not saying much.

How Will German Legalization Affect Aurora?

Aurora Cannabis ended Q2 2023 with a net loss of $67.2 million and $310 million in cash. The company has repeatedly screwed over shareholders by raising equity capital and diluting wealth.

The result has been a steady drop in stock prices. In fact, Aurora Cannabis’ current market cap is $385 million. That’s a 99% fall from their all-time highs.

So how will German legalization affect Aurora’s stock price? On the surface, a low-scale German effort appears like bad news. Germany’s population is twice the size of Canada’s. An Aurora presence in Germany could have helped boost revenues.

However, establishing a presence in Germany would have meant investing capital. Which begs the question: what capital? Investors may not stand for another round of dilution.

Meanwhile, Aurora Cannabis focuses on medical cannabis products. Where gross margins are higher than in recreational markets.

Aurora Cannabis’ losses in the last four years have totalled $1.2 billion.

Why Germany?

Ever since an act of Parliament created Canada’s licensed producers, they’ve been eyeing up the German cannabis market.

But why? How does German recreational legalization or its 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 medical cannabis, compared to the $8 average in Canada.

Second, as mentioned, Germany has about 46 million more people than Canada. As well, German insurance claims on cannabis are more common than in Canada. This is part of what led to Aurora’s acquisition of Germany’s most prominent cannabis distributor.

What About Germany’s Pilot Project?

Germany will launch a regional pilot programme as part of the two-phase legalization plan. In select cities, the government will assign a commercial company to supply cannabis through dispensaries. This pilot will be a test to assess broader commercial sales within the country.

So how will Germany’s legalization pilot project affect Aurora Cannabis? Will Aurora be the commercial supplier?

The details of this test pilot programme are not yet known. But you can be sure Aurora executives are rubbing their hands at the prospect.

And can you blame them? They’ve spent millions trying to capture the European market.

As mentioned, Aurora’s German investments involved acquiring Europe’s largest medical cannabis distributor, Pedanios GmbH. They’ve also bought over 3,000 pharmacies. 

Aurora has put significant money into the European markets. But given their emphasis on medical cannabis, it doesn’t seem likely they’d supply Germans with recreational cannabis.

However, the “public health” model of cannabis legalization is about selling pharmaceutical-grade cannabis. It could be that the German government, like the Canadian government, is eyeing these medical producers as commercial suppliers of recreational cannabis. 

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