Oil extraction is becoming a strength for Aurora Cannabis (TSXV:ACB), says Canaccord Genuity analyst Neil Maruoka. 

This morning, Aurora Cannabis and Radient Technologies announced what it described as positive results from a research joint venture into extraction. The companies say the results have led them to pursue commercialization. 

“These results clearly validate the game-changing nature of Radient’s technology for the cannabis sector,” said Aurora CEO Terry Booth. “The ability to produce high-purity concentrates at very high throughputs, while preserving terpene profiles, will provide a substantial competitive advantage for us in addressing the high-growth concentrates market. We see a number of factors that will require a significant expansion of production capacity for extracts, including our own expanding national and international footprint, the continued strong growth of the medical market in Canada, Germany and Australia, and the commencement of Canadian adult usage sales anticipated for July of 2018. The exclusive use of Radient’s technology positions us as the clear leader in this field, which we believe will enable Aurora to capture a significant share of this high-margin market. Aurora is very pleased to be a significant shareholder of Radient, and as part of our partnership with them, plan on continuing to hold a significant position in Radient.”

Maruoka says Aurora is taking a leadership position in a vertical that may become important to all Licensed Producers.

“Based on the positive data and the expected ability to scale up Radient’s extraction process, the companies have agreed to begin negotiating an exclusive development and commercialization agreement, which should enhance Aurora’s positioning in the production of value-add extracts, in our view,” says the analyst. “We believe that the efficient processing of cannabis oils and concentrates will be critical for LPs to maintain margins if pricing comes under pressure in the longer term as distribution shifts to a wholesale model. We expect that Radient’s technology could allow Aurora to move up the value chain towards higher margin products as additional capacity comes on line.”

In a research update to clients today, Maruoka maintained his “Speculative Buy” rating and one-year price target of $3.25 on Aurora Cannabis, implying a return of 54 per cent at the time of publication. 

Maruoka believes Aurora will post EBITDA of $7.9-million on revenue of $27-million in fiscal 2017. He thinks those numbers will improve to EBITDA of $80.2-million on a topline of $192-million the following year.