Aurora Cannabis Inc. (CVE:ACB) CEO Terry Booth discusses the “Aurora Sky” buildout of his million-square-foot facility in Edmonton, Alberta.

Transcript:

James West: Terry, thanks for joining us today.

Terry Booth: Hey, James, thanks for having me.

James West: Terry, let’s start with an overview of where is Aurora Cannabis at in the grand scheme of things in the recreational, or sorry, the medical marijuana space?

Terry Booth: In the medical space we’ve had astounding growth. We’ve assembled an awesome team, we have a wonderful facility in Alberta, we’re a low cost producer producing high-quality cannabis and doing our best to meet our patients’ needs.

James West: Mm-hmm. So I see that from September ’16 to November 2016, you grew by 5,700 patients? That’s an implied rate of about 34 percent month-over-month. Is that the rate at which your patient base is growing now?

Terry Booth: It just continues close to that clip. We’re actually sort of watching what we’re doing here, taking on patients, because the cannabis can only be grown to a certain level at our existing facility, and we don’t want to run out of cannabis. So we’re looking at all kinds of different ways to continue the growth, but to also meet the patients’ needs. It’s a terrible thing when you have to say you don’t have medicine for a patient.

James West: You bet. So exactly how much does Aurora produce now, and how much of it do you sell?

Terry Booth: That’s a great question. The statistics that we have sort of are still moving up and down a bit, James, because we’re not at total capacity. So our license is for 5,400 kilograms; we feel this is where we could do 7,000 kilograms at full capacity, and that’s putting a crop up every 9 to 10 days; a full crop up there. So we expect to be there at the end of January.

James West: Okay, interesting. Now, the press release that I saw that intrigued me the most was your announcement on November 30th, that you are beginning construction on 800,000 square foot Aurora Sky expansion. What’s that all about?

Terry Booth: It’s the – it’s a dream of ours, we’ve been working on it for close to a year now, with numerous trips to Holland, meeting the top designers and the top suppliers in the world. A lot of people may not know, but Holland is certainly the leader in greenhouses, and they build a wonderful product.

This particular greenhouse that we’re building is, as some describe it as a hybrid. I don’t, I describe it as a supplemental sun. There are as many number of lights per square foot, 1,000-watt lights in this greenhouse, as there are in our existing indoor facility. So the sun is really used just to bring in the light, but to also diffuse the light so that it bounces around within the rooms.

An example of the size, it is a tremendous size. The one room alone has more light in it than our existing facility in Cremona. The automation within this facility is unbelievable; cranes moving plants around, placing plants, lots of conveyor systems moving product, with the whole goal in mind to keep the plant as clean as possible and free of interaction with humans as best we can.

James West: Right. So I’ve heard it said from others in the industry that your vision for Aurora Cannabis is quite a bit different from those of other medical marijuana producers. Can you maybe just elaborate on what they might mean by that?

Terry Booth: I think, James, what they’re referring to is our relationships with the community and the culture, and our need to make sure that what we grow, even though we’re growing it at a large scale, meets the needs of the existing community and culture. These guys have been around for 50 years; some growing cannabis and some just enjoying it. The home grow has always been supported by Aurora since Day One. When I first started looking at this industry, I noticed large lines of divisiveness between producers and the community and the culture, and Aurora has definitely done the job in mending that fence, and we’ve done that through our quality product that we’re producing now, and we’ll do it with the quality product we’re going to produce later.

We’re not going to cut steps just to have mash, but we’ll have excellent product, at a very low cost.

James West: Interesting. And so for home growers, what does that imply? Would they be better off buying from Aurora, or should a home grower, you know, continue to undertake their self-education in home horticulture?

Terry Booth: Cannabis, number one, is a difficult thing to grow. And Aurora will be very supportive – and you’ll hear about this over the next three months, certainly if we speak again, you’ll have an excellent update with some proof backing up the words here – but Aurora will be helping people who want to have their home garden, grow their cannabis in a proper way. It’s not easy to grow, and people need advice on a lot of scales. Certainly new growers need to know all of the proper techniques, proper nutrients, proper way to look after your plants. We think we’ve done a great job in the medical industry; with our patient increases, it’s been better than any of the other LPs out there. Our ambition to be a top producer in the adult usage recreational space is not something, I don’t think the other licensed producers are looking for. Maybe they haven’t executed like Aurora, or had the capacity with the team that we’ve had at Aurora, and certainly no one has grown like Aurora.

So if they’re saying they don’t want to do what we do, adios, muchachos, we’ll see you in the parking lot. We’re not worried about what other people think. We think we have a firm goal and a firm vision, and we’ve got a team to (unintelligible) [0:05:51] I think we’re going to accomplish most of those goals.

James West: Sure. So your 800,000 square foot facility is planned for commissioning roughly October 2017 barring delays, according to your press release, and that’s going to enable you to grow 100,000 kilograms a year of marijuana. And I’m just curious: Do you think that the Federal government is going to hit their targets for recreational cannabis sales such that you’ll be able to sell 100,000 kilograms a year?

Terry Booth: (unintelligible) Let me say what we’re thinking there: we’re not building it in stages, we’re going to go after this project, but when we hit around 250,000 to 300,000 square feet, that’ll be ready to grow, and that should happen in late spring of 2017. By that time, we’ll know what the government has tabled for legislation, and if for some reason the government has (unintelligible) slowed down in their anticipated start date, which we feel is April of ’18, then we can stop construction and just finish with the 250,000 square feet and get growing.

We intend to stick to the growing anyway in June of 2017 with a full completion date in the fall of 2018. Now you talk about kilograms: it takes a long time to get to 100,000 kilograms a year. The number of plants are tremendous. So we figure nine months after the fall of 2018, we’ll be getting close to full production; it might take an additional six on that. So we’ll know what’s going on in the space before we commit to turning on all the lights, let’s put it that way.

James West: Okay. So in your view, is the progress at which the Federal government is proceeding, do you see them hitting April 2018, or do you get the sense that there’s going to be some delays?

Terry Booth: I do see them hitting April 2018. They have to take a year once they’ve tabled the legislation anyway, because they have to notify the UN and then the UN requirements and the treaty require that the country give them a year notice. They’ve done a great job rather quickly of assembling a task force. Where my concerns would lie, James, would more be in the distribution, getting the provinces all keyed up. So maybe the provinces will come on in a step procedure; nobody knows. We’ll have more information towards the end of December here with respect to the government reporting what the task force has recommended.

James West: Right. Okay. So in terms of scale, Aurora is obviously moving towards competing on scale with the largest producers, which I guess we’d call it Canopy at this point. Is there a sense, in your view, that scale is what is going to be required to sort of be a contender once we hit the recreational phase, or is there going to be room for smaller boutique growers?

Terry Booth: I think there will be room for smaller boutique growers for sure. I think that even with Canopy and Aurora taking their selves five times each bigger than we already have planned will not support the adult usage market, and certainly we see the boutique system in the beer and in the wine. I don’t know why there wouldn’t be room for boutique growers at all.

James West: Sure. Well just to pursue that a little bit, in the case of beer and wine, a boutique craft market sort of speaks to the variability that is possible within the development of beer and wine across flavour spectrums and other components. When it comes to marijuana, there’s really, at the end of the day, you’ve got taste and you’ve got effect, and that’s it. so what I’m seeing, and I want to hear from you is, are we not moving towards a commoditization of marijuana whereby at some point, we’re going to see a standardized weight unit with a standard sort of CBD/THC profile that is going to trade as a commodity at some point, like canola?

Terry Booth: Not a pull (phon)[0:10:10]. I think that if any marijuana connoisseurs are listening to what you just said, they’ve fallen out of their chairs. Marijuana has a number of different strains, a number of different flavours, a number of different smells, and a number of different effects. We’ve got alcohol and beer and wine, no matter how much you drink, you’re going to get drunk, right? Or what you drink. But with marijuana, there’s a number of different effects you could have psychoactively, or with your body. Certainly the connoisseurs are all about the smell, the aroma, the flavour, the smoothness. So I don’t see it being commoditized anytime soon. If you’re going to be growing at our scale, you better be growing select strains at that scale. They’d better be high quality, or you won’t survive in the existing recreational market.

James West: Aha. So you’re saying that even if you go to an industrial scale like 100,000 kilograms per year, you’re going to have to take a craft horticultural approach in order to attract the connoisseurs?

Terry Booth: You better look after your product. You better not be planning on just growing it abundantly and then getting it irradiated because you couldn’t control your molds and mildews. Like some LPs now, they’re just making the decision to grow it as fast as they can, and they know they have to irradiate because you can’t grow it under quality proceed conditions. That’s what the difference is between this facility we’re planning, and any other greenhouse in this country for growing cannabis. I don’t even like people trying to compare us to an Aphria, Tweed Farms, Supreme or any other greenhouse; this is an amazing facility that we should be able to grow expert cannabis with expert taste, flavour and cleanliness.

James West: Okay great, Terry. That’s an awesome introductory podcast. We’re going to come back to you in a quarter’s time and see how you’re making out. Thank you so much for joining us today.

Terry Booth: Thank you very much for having me. Have a great Sunday, James.

James West: You too.