A couple of weeks ago, I covered the odor problems Edmonton-based Aurora Cannabis (NYSE:ACB) was having at its Aurora Sky grow op near the city’s airport. You wouldn’t think this kind of issue would be good for Aurora stock, but that’s precisely what I argued.
The odor issue is proof positive Aurora is the real deal.
As a result of my about-face when it comes to Aurora stock, I’m paying closer attention to news about the cannabis company.
Aurora Gets Exclusive
On April 26, Aurora announced that it had entered into a royalty-bearing commercial license agreement with Vancouver-based Enwave Corporation (OTCMKTS:NWVCF), a provider of Radiant Energy Vacuum (REV) technology for the dehydration of organic materials.
Under the terms of the agreement, Aurora gains the exclusive rights to the patented REV drying technology for use in the production of cannabis in the European Union excluding Portugal. It’s also gained exclusivity in Australia and South America excluding Peru and non-exclusive use in Canada.
As part of this agreement, Aurora is buying two of EnWave’s 120kW REV dehydration systems for both its Aurora Sky and Aurora Sun facilities with plans to purchase a third unit for its Aurora Nordic facility in Denmark.
According to Aurora’s press release, EnWave’s REV technology will allow it to rapidly dry the cannabis at a low temperature effectively maintaining the flavor profiles and other attributes, something that can’t be done with freeze drying or air drying.
Considering flavor is a crucial component of a marijuana user’s experience, being able to retain this through the drying process is an essential step in capturing market share.
Aurora and EnWave will work together to jointly benefit from the REV technology making its way through the cannabis industry.
Ancillary Companies and Aurora Stock
Why would Aurora bother with an exclusive license of the technology?
“EnWave’s technology offers very significant benefits that further improve the economic returns on our Sky Class facilities,” said Terry Booth, CEO of Aurora. “The technology provides us with industrial-scale flow-through, reducing working capital requirements, accelerating time to market from harvest, as well as increasing our ability to produce bulk-sale cannabis for extraction and use in derivative products.”
EnWave benefits because Aurora will go into these markets to sell more of the machines and technology Aurora’s buying for its own facilities. EnWave will get royalties on any sub-licensees it brings into the fold.
To seal the deal, Aurora’s buying $10 million in EnWave stock at an agreed upon price of C$1.886 a share, the cost of EnWave stock before the announcement of the global licensing agreement.
The reality is that Aurora realized the benefits of this technology and decided it made business sense to control how this technology gets rolled out in different markets around the world. If Aurora didn’t make this deal, it’s likely somebody else would.
When opportunity knocks, you open the door.
EnWave and Aurora Stock
Although EnWave has a market cap of C$250 million, it’s still a small company. Partnering with Aurora gives it greater credibility in the cannabis industry which should lead to faster penetration of this key market.
Currently, EnWave makes money in three ways: royalty revenues from companies like Aurora, the sale of actual machines like the two Aurora bought, and revenues from NutraDried Food Company, its wholly-owned subsidiary that makes Moon Cheese, a natural cheese product that crunches.
In fiscal 2018, EnWave had annual revenue of C$22.8 million, received C$1.39 million in royalties, and generated a small loss of C$407,000 before tax, one-seventh the decline in 2017.
While the cannabis opportunity is significant, there are many other applications for the technology. More than 80 companies are currently in talks with EnWave.
If you own shares of Aurora, either take some profits to pay for EnWave stock or use some of your cash, but get on this up-and-coming company.
It’s a micro-cap with legs.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
