The News

Aurora Cannabis Inc. (TSE: ACB) announced the acquisition of Agropro UAB, the largest organic hemp grower in Europe.

Aurora also purchased the sister company of Agropro, Borela UAB, a major processor of hemp seeds into hemp flour and oils which are then sold into the food and cosmetics industries.

Aurora paid C$15 million for Agropro, including payments in cash, new shares of Aurora, and Agropro debt assumed.

 

The Assets

Agropro has 4,000 acres currently under contract, which Aurora thinks can yield 1 million kg of raw hemp material.

Additional contracts are in place to expand production up to 7,500 acres which, based on yields of the smaller fields, would produce 1.9 million kg of raw hemp.

Agropro.lt

Borela UAB is a processor and distributor of organic hulled hemp seeds, hemp seed protein, hemp flour, and hemp seed oil, which are sold direct to consumers and as raw materials in cosmetic products.

Borela UAB Product List

Borela UAB

Deal Size Was Small, but Revenue Potential is Huge

Wholesale

A C$15 million deal is just a drop in the bucket for Aurora, but the revenue potential from Agropro could be substantial based on information coming out from other hemp growers.

LiveWell Canada, a Canadian licensed producer, revealed some useful details about the economics of the hemp plant in a press release last month.

LiveWell purchased 1,000 acres of hemp in Canada and expects to produce 25,000 kg of CBD concentrate from the raw hemp.

Using yield and processing efficiency metrics from LiveWell, we estimate Aurora can produce 25,000kg of CBD concentrate from the initial harvest of 1 million kg of raw hemp, increasing to 47,000 kg with future contract expansions.

Agropro could potentially generate up to C$300 million for Aurora every single year.

With the current wholesale price for a kg of CBD concentrate at C$6,500, according to LiveWell, Aurora could be generating C$163 million of revenue from the initial 4,000 acres and over C$300 million annually with additional growth.

This is a massive amount of revenue potential for a C$15 million dollar asset.

Agropro could end up generating 10% of Aurora’s revenue in 3 years and is worth $0.08 per share to the stock price today under this scenario.

Retail

If Aurora can sell all 25,000 kg through its retail channel the revenue potential will be 33x higher.

Agropro could be worth $2.50/sh to Aurora under a retail scenario.

Looking at retail prices for CBD isolate from Charlotte’s Web, a United States CBD retailer, a 1 oz bottle costs C$130.

The bottle contains a little more than half a gram of pure CBD, equivalent to C$220 per gram of pure CBD.

If Agropro can sell CBD for similar prices, the company will generate C$5.5-C$10 billion of annual revenue.

Under a retail scenario Agropro could be worth $2.50 per share to Aurora or 28% upside to the current stock price.

CBD Could Make Investors Forget all About THC

Hemp and the CBD derived from it may turn out to be one of the most exciting growth areas of the emerging legal cannabis market.

CBD products sold into health and wellness channels are seeing very strong consumer demand.

CBD does not impair the user like the active ingredient THC, allowing consumers to ingest CBD more often and in greater doses than THC.

With CBD oil prices rivaling high THC flower prices, the revenue and profit potential of CBD looks even better than products you typically find in a legal dispensary.

Investors who ignore the value of hemp products run the risk of missing out on the stocks that could drive the next cannabis rally.