Adam JacksonWhile many cannabis companies hang their hopes on rapid growth in Germany, Aurora Cannabis (NASDAQ: ACB) executives offered a more realistic view of its prospects and challenges in the European country following regulatory changes this year.
During the company’s fourth-quarter earnings call on Thursday, CEO Miguel Martin disputed the predictions of rapid market expansion in Germany.
“We don’t see doubling,” he said, instead suggesting more modest growth of “20% to 30% annually at a minimum.” And to be fair, that’s really strong growth, but it’s not as grand as many have proclaimed it will be.
Part of the reason for moderating the prediction, Martin explained, is that the German medical cannabis system operates differently from other markets.
“In Germany, it is a relationship – as it is with other medical products – between a prescribing physician who’s prescribing a specific product at a specific dosage,” he said. “And then the patient is getting it fulfilled out of pharmacy.”
That approach contrasts with less restrictive systems like seen in the U.S. state markets, where patients have more flexibility in product selection, Martin said.
“That being said, being in a traditional pharmaceutical model does allow for a steadier cadence and very importantly, allows for good margins because the flow of the economics start with the wholesale price, so you don’t see this massive compression in either the self-pay or the insured market that you see in other markets,” he said.
“And so is it a little bit slower? Yes, is it a bit more traditional? Yes. Both which we like, but also, like other pharmaceutical products steadier from a margin standpoint.”
Data limitations
The Alberta-based company also faces challenges in obtaining current market data in Germany, Martin noted. He told analysts that manufacturer shipment information is only available quarterly, making it difficult to assess immediate effects of regulatory changes.
“It will probably take a quarter for that data set to sort of catch up and see what the shipments are,” he said.
Martin also pointed out that Germany’s strict requirements for bringing cannabis products to market create big barriers for new market entrants, but they can benefit established players like Aurora.
“Packaging and permitting in order to bring a new product into Germany takes anywhere between 8 months to 12 months,” he said.
Aurora is among three companies with local cannabis cultivation facilities in Germany already. Martin said that the company holds the second-largest market share for cannabis flower products and leads in the self-pay patient segment. He added that three of Aurora’s cultivars are among the top 10 by volume sales in the country.
Martin flagged the company’s ability to meet Germany’s rigorous production standards, including EU-GMP certification for their production facilities, as a competitive advantage.
Aurora’s status as one of the few companies with a domestic cultivation facility provides an advantage in meeting demand. Martin noted, however, that the precise nature of product requirements, including strict potency tolerances, can make consistent supply challenging.
Still, Aurora views Germany as a key component of its international growth strategy. The company believes its experience navigating German regulations will be beneficial as the market evolves over time.
“We are very confident that when the (United States) legalizes, we’ll be in a great position,” he said, while drawing parallels between potential U.S. regulations and the company’s experience in Germany.
