Aurora Cannabis Inc.(CVE:ACB) (OTCMKTS:ACBFF)(FRA:21P) CEO Terry Booth returns to discuss the fallout from charges that Mettrum and Organigram Holdings Inc. (CVE:OGI) shipped marijuana from their facilities that was contaminated with Myclobutanil, a toxic pesticide ingredient that releases cyanide when combusted.

Transcript:

James West: Terry, thanks for joining us again!

Terry Booth: Thanks for having me, James. How are you?

James West: I’m great, thanks. It’s been a very busy month for Aurora Cannabis, I noticed. Why don’t we start with your $60 million bought deal financing? How did that get upsized, and what are you going to do with all that money?

Terry Booth: We got upsized mainly because of the interest, and it was over-described with a greenshoe on it and it ended up being 75 million. We’re going to put that money to good use. It’s going to obviously go towards some of the Sky project out of the Edmonton International Airport, and also go towards some other endeavours that we can’t really speak to now because we’re a publicly traded company.

James West: Right. Okay. So one of the other major developments, I see that you received your license to sell cannabis oils and associated products, and coincident with that, you have made an investment in Radiant Technologies, who specializes in extracting resins from plant materials. Tell us about that relationship.

Terry Booth: The Radiant fellows were introduced to me from a quality assurance person that we use here in Canada, in Alberta, Mr. John Simon, and they’re an extraction company. They have an amazing technology with exceedingly high throughput and excellent terepinoid maintenance with their extraction technique in the order of 90 percent to 100 percent purity, and we’re in the early stages of testing with them, but so far, so good. So it’s looking like it’s going to be an option for us in the future.

James West: Sure. So in the existing medical marijuana sort of context, is the demand for cannabis resins outpacing that of dried cannabis flower?

Terry Booth: At this point, we believe it’s 50/50; in Canada, it’s gaining. The ratios in Colorado, for instance, are 60 percent more towards the extraction than they are the flower.

James West: Okay. And so at this point, you were really demonstrating some great growth numbers in patients last time we spoke in the fourth quarter of 2016. Have you maintained that pace? Are you still adding patients, and if so, how many do you have now?

Terry Booth: I think we’ve announced north of 13,000 patients. We continue to add them at a very high clip. I think that the beauty of Aurora is that the number of patients that are demanding our product continue to grow. It’s very interesting that they’re having to look for ulterior medicinal supply already; obviously the Sky project will help that out, that’s not going to come online for some time. So the demand in Canada is still growing 10 percent month-over-month. Aurora is still seeing a 20 percent growth month-over-month.

James West: Wow. That’s definitely good numbers. So, and tell us about the progress being made in the Aurora Sky 800,000 square foot buildout?

Terry Booth: Sure, it’s going great. We’ll have a formal announcement in the next week with an update. The project is underway. The plant has been stripped and filled; the screw piles are in for the first portion of the project, the first C-can is on the water now, towards Canada from Holland. And it’s exciting. We’ve hired all of the engineers required, we’ve hired our general contractor. We haven’t named all those yet, but we will be in the upcoming weeks.

James West: So, do you think that the demand for Canadian sourced medical marijuana in the near term is going to see an increase as a result of the broadening of rules in, for example, Australia, Brazil, Germany, in the last couple of quarters? And, is Aurora positioned to capture any of that?

Terry Booth: We’re obviously looking at international opportunities, and there are some out there. I believe Aurora will avoid the opportunities in South America just because of the geopolitical climate, but all those other countries you mentioned, we are poised and we are certainly interested, and discussions have been underway with those different countries for some time now. I think all of the licensed producers in Canada have an excellent opportunity just because of the standards in Canada and the head start that we’ve had. All those countries are looking at our system and I think they see its successes. And you’ll see that they’ll pattern themselves after Canada.

Pesticide discovery in Mettrum, Organigram product

James West: Mm-hmm. And so, the recent sort of revelations about some contamination from pesticides at a couple of the ACMPR growers, that had no effect on Aurora or what Aurora is doing, and in fact, from what I understand from our last conversation, is rather contrary to your entire philosophy towards cannabis.

Terry Booth: Yeah, well, it actually did have an effect on us, because some of the cannabis that we had purchased were from some of those companies, the Organigram, and we were actually the ones, James, that discovered. We were the ones that found the pesticides in this product, we reported that to Organigram, they claim that they didn’t know this, so they started their own investigation internally. The recall for them ended up extending all the way ‘til February of ’16. It was quite a massive recall.

We were affected for 71 kilograms, some of which we sent back to them; that is, we recalled from our client. It counted to us as less than one half of one percent of sales, but still, was very disappointing for Aurora customers. We pride ourselves on the cleanliness of our product and the way that we grow it; we want Health Canada now they ask all LPs to test for all pesticides like we do. It did show that the system works, but it was an unfortunate chain of events, and we’re certainly not going to be buying any product off Organigram anytime soon.

James West: Okay. So to what extent do you think that incident has damaged the trust in the consuming public to the point that a portion of them might say well, why should I bother buying from an ACMPR when I’ve got all these dispensaries popping up around me or I could just walk in my neighbourhood and just buy something that arguably is no better than what the ACMPR people are offering? At least, that is somewhat going to be the perception as the result of this. Would you agree with that?

Terry Booth: I would agree, 100 percent. I guess to just say that you don’t know what you’re getting when you buy from a dispensary, who supplied it. At least you know who supplied it in the ACMPR system, and it has been uncovered. The dispensaries are now required to test it, in fact, are lining it up, for the most part, a black market. I think that you’ll see in the future, the task force has recommended to the Government of Canada that the licensed producers and that the system will allow for storefront, and that storefront being, just all they put in the task force by educated people. So I don’t think it’ll be too long in the legalization system before LPs start supplying the dispensary world.

James West: Where did the breakdown occur in the ACMPR protocol that prevented the detection of pesticides in Mettrum’s and Organigram’s crops?

Terry Booth: Well, the test problem was, they weren’t testing for it. There was a rule, it still is, it’s being changed, the rule in Canada was: if you didn’t use pesticides, you were not required to test for them. And that’s what both of these LPs did, they both claimed it was put on there vicariously. The pesticide is not a nice one; it’s Myclobutanil, and it’s something that is not very safe, from what we understand, when burnt. It tosses off the cyanide gas when burnt.

So they didn’t test for it. One has nailed the pipe, one of the ex-growers has come out and has explained how it all occurred, so it’s not pretty. But that incident has required very shortly now that all LPs test for pesticides. We’ve always done it. I didn’t want anybody accusing us of having pesticides in our product; we’ve always tested for it. Like I say, it’s unfortunate, but it will change the rules, which will ultimately lead to a safer product.

James West: You bet. Okay, and then, in terms of the rollout of the recreational rules, have you heard anything, or do you have any sense of exactly what the timing is going to be until recreational users can pick it up off the shelves in their local communities?

Terry Booth: You know, it’s, see, the task force has reported, but they didn’t report on timing, obviously. It’s still set for the government to table the legislation this spring, this April, and we feel, strongly believe, that tabling of legislation before from that to when it hits the shelves, will be one year. But we’re still estimating spring of 2018 for full adult usage in Canada.

James West: Okay, great. Terry, that’s an excellent update. Thanks so much for your time today. We’ll come back to you in due course and see how you’re making out.

Terry Booth: James, have a great day. All the best.