It might not be the invention of the automobile or the electric light, but the Dec. 3 announcement by Aurora Cannabis (NYSE:ACB) that it has received the go-ahead from Health Canada to sell cannabis softgel capsules for both the Canadian medical and adult-use recreational markets, is excellent news for owners of ACB stock.
“Following our successful receipt of our sales license for softgels, we are now ready to start providing yet another type of delivery technology for our patients and customers,” stated Shane Morris, Aurora’s SVP of product development and regulatory affairs.
“Production will be scaling up in the coming weeks, which will enable us to introduce this product to all our domestic and international target markets. We will also continue to develop new types of softgel products, broadening our offering to meet all medical and consumer needs.”
Aurora’s Softgels a Sign of the Future
Okay, while that last sentence sounds a little too much like it wants to be all things to all people, the launch of a product that’s got mass-market potential is a sign Aurora understands it must bring differentiated products to the marketplace if it wants to continue to grow its revenues, not to mention ACB stock.
Cannabis businesses expecting to survive by selling dried cannabis exclusively aren’t going to last with new companies entering the industry on a daily basis generating innovative product ideas.
Aurora CEO Terry Booth says it best describing the softgel products:
“Softgels are a high-volume, high-margin product for both the medical and adult-use markets that are in strong demand, and Aurora is one of few companies making these products available to patients and consumers alike,” Booth said in Aurora’s press release. “There is a strong momentum towards smoke-free, consistent dosage delivery technologies, and our softgels are a very familiar form factor that satisfy patient and consumer needs.”
Smoking Is a Thing of the Past
People in my age group (I’m 54) who haven’t smoked cigarettes in years likely have zero desire to smoke pot. I know I sure don’t. However, softgels and other orally consumed delivery mechanisms might get me to try Aurora’s lineup as well as exploring some of the other cannabis producers currently selling softgel products in Canada.
The reality is most people in their 40s and older are likely waiting to see what comes down the pike once edibles and cannabis-infused drinks are legalized by the Canadian government, which is expected on October 17, 2019 — the one-year anniversary of pot’s legalization.
Called the “second wave” by many in the industry, the demand for edibles and cannabis-infused drinks is likely to dominate the cannabis marketplace in Canada and around the world.
“If you come to my house, do you want me to pour you a beverage that makes you feel a little happy? Or do you want to smoke marijuana?” Canopy Growth (NYSE:CGC) CEO Bruce Linton said in November. “Many people find it socially comfortable to have a beverage.”
Equally important, products like these have more consistent doses of cannabis oil, which makes them far more attractive to the occasional user.
Would you buy a bottle of wine or spirits if the alcohol content wasn’t consistent? I don’t think so. The same holds for cannabis.
Chuck Rifici, who was CEO of Canopy Growth before being ousted by the company’s board in 2014, is a big believer in the second wave.
“The average Canadian will be able to have a lot more brand differentiation because whether it’s packaging or taste, there will be a lot more factors beyond just flower and bud,” Refici said in November.
“The brands will really start being built next year.”
Aurora might not be the only Canadian cannabis company selling softgels, but the announcement suggests the acquisitive company is looking to dominate a segment of the cannabis market that’s likely to outperform dried cannabis and cannabis oils at some point in the future.
In the end, the broader cannabis market will succeed as a result of delivery technology innovation (softgels, edibles, cannabis-infused drinks) and not by offering consumers a million different types of dried weed.
The Bottom Line on ACB Stock
In this respect, Aurora’s move into softgels is a step in the right direction.
Does that mean you should buy ACB stock? No, it doesn’t, but it does provide some context on where the industry is headed and who’s currently leading that charge.
Cannabis is still an eight-letter word for risk.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.