Fiscal 2017 Management
Discussion & Analysis
AGILITY
INNOVATION
EXECUTION
Building a globally dominant
cannabis company
Aurora Cannabis Inc.
A YEAR OF
UNPARALLELED
EXECUTION
World’s largest capacity,
most technologically
advanced cannabis facility
PEDANIOS
CANN
GROUP LIMITED
FISCAL 2017
INVESTOR
HIGHLIGHTS
$18.9 M 20,000
in F2017 revenues
active and pending
registered patients
TWO
acquisitions
TWO
strategic partnership
investments
Rapidly constructing
100,000+ Kg
per year advanced production facility
AGILITY
Fastest ever organic
growth to 20,000
active and pending
registered patients
First to make
independent lab test
data available for all
products
First and only LP to
offer same day delivery
in two metropolitan
centres
INNOVATION
AURORA SKY – world’s
most technologically
advanced cultivation
facility
Collaboration with
Radient on new
extraction technology
First and only licensed
producer with mobile
app for purchase of
medical cannabis
EXECUTION
Raised >$230 MILLION
to fuel aggressive
growth strategy
On track with
construction 100,000+
KGPA Aurora Sky
Facility
Migrated from
CSE to TSX-V
Graduated from
TSX-V to TSX
NATIONAL
EXPANSION
CANVASRX(100%)
From 13 to 25 locations
PELOTON
PHARMACEUTICALS
(100%)
40,000 sqft
HEMPCO FOOD &
FIBER (Up to 50.1%)
INTERNATIONAL
EXPANSION
GERMANY
Pedanios (100%)
AUSTRALIA
Cann group (19.9%)
Export/import licenses
received.
First shipment to
Germany completed.
INNOVATION
AURORA
MOBILE
The world’s first app
for buying federally
regulated medical
cannabis is more
convenient and easier
to use than ever
before.
Push notifications
ɠ You can be the first to know about strain releases and other important
Aurora news. Just sign up for push notifications and we’ll be able to send
prompts striahgt to your mobile device
Fingerprint Authentication
ɠ Now you can access the Aurora mobile app without having to remember
your client ID and password. Just use your registered fingerprint on your
Android or iOS device and the app will log you in securely
Performance improvements
ɠ Key performance improvements and stylistic changes make this version
of the app faster, easier to navigate, and improve the overall user
experience. Placing your order with Aurora has never been simpler
RADIENT
TECHNOLOGIES
Superior, proprietary
extraction process:
faster, more efficient,
higher throughput,
with terpene
preservation.
AURORA SKY
CONSTRUCTION
2017
2018
First bays to be planted
before year-end
Completion full
facility mid-year
ɠ 290,000+ square feet of greenhouse structure has
ɠ 120 out of 500 total required sea-cans have been
been erected
received on-site
ɠ 80% of which with glass fully installed.
ɠ Water reservoir has been completed, which will hold
ɠ 6 of 17 growing bays erected
ɠ 2 of 3 vegetative rooms standing
ɠ Deep services (water and gas) 70% complete
ɠ Electrical ring is nearly 50% complete.
17,000 m3 of water, equivalent to nearly 7 Olympic-sized
swimming pools
ɠ Plants in first operational bays by end of 2017.
ɠ Full completion mid 2018
NATIONAL
EXPANSION
2
1
3
1 THE FOUNDATION
CREMONA
ɠ 55,200 square feet
ɠ 4000+ kg annually
ɠ 10 flowering bays
ɠ First purpose built industrial scale
ɠ 960 lights
ɠ ~100 employees
cannabis facility in Canada
2
AURORA
SKY
EDMONTON
ɠ 800,000 square feet
ɠ ~30,000 plants per bay
ɠ 100,000+ kg per annum at
ɠ 15 dry rooms
full capacity
ɠ Strategically located at Edmonton
ɠ 16 flowering bays, 3 vegetation
bays, 1 propagation bay
International Airport for
domestic and export markets
3
PELOTON
POINTE-CLAIRE, QUEBEC
ɠ 40,000 Square foot
ɠ Operations base for Quebec and
ɠ Near completion
ɠ First harvests planned before
year end
the maritime provinces
ɠ Integrating technology also to be
used at Sky
INTERNATIONAL
EXPANSION
PEDANIOS
GERMANY
ɠ Germany’s largest distributor of
ɠ Germany is world’s largest
medical cannabis
ɠ Supplying over 1,500 pharmacies
ɠ Gateway to the EU
ɠ Tender for domestic cultivation
license on track
federally-legal medical cannabis
market
ɠ Demand significantly exceeding
supply
82M
population Germany
Broad insurance coverage of
prescribed medical cannabis
~500M
population EU
CANN
GROUP LTD.
AUSTRALIA
ɠ Australia’s first licensed cannabis
ɠ Distribution agreement with
company
CannaKorp
ɠ First harvest completed
ɠ Cornerstone investor in IPO, now
holding 19.9% of shares
ASX: CAN
1.25
1
.75
.5
Invested at AUD $0.30
.25
Jun. 15, 2017
Sept. 15, 2017
BUILDING A GLOBALLY DOMINANT
CANNABIS COMPANY
DEAR
SHAREHOLDERS
Fiscal 2017 was a year of tremendous progress and growth,
driven by Aurora’s agility, innovation and disciplined
execution of our business strategy. We are now emerging
not just as a Canadian leader, but as a globally dominant
cannabis company. This is a truly remarkable achievement
considering we received our licenses to produce and sell
cannabis some 18 months after our key competitors among
licensed producers. We’ve had to be faster, more innovative
and better at seizing opportunities, to allow us to catch up,
surpass, and move to the head of the pack. It has been an
incredible journey, and it’s only just starting.
This document provides some of the highlights of our path
so far, and points the way to the future, as we continue to
expand in Canada and around the world.
During the 2017 fiscal year, we continued to deliver an
excellent customer experience, with widely-admired high
quality products, substantial investments in customer
care, and innovative ways to make it easy for customers
to interact with us, through our unique mobile application
and expanding same-day and next-day delivery. The result
has been what we believe to be the sector’s highest rate of
patient acquisition and consistently strong revenue growth.
We also continue to execute on our expansion strategy.
With Aurora Sky at Edmonton International Airport
and our new Pointe-Claire, Quebec facility, in addition
to our outstanding purpose-built Mountain facility near
Calgary, we will have the capacity we need to lead in
the high-growth medical and pending adult consumer
markets in Canada, as well to as capitalize on exceptional
international opportunities in Europe, Australia and other
emerging markets.
We are invested in Australia’s first ever licensed cannabis
company, and own 100% of Pedanios, Germany’s largest
distributor of medical cannabis. The latter is servicing a
market in a country with 82 million people, where there
are no current domestic producers, and where demand is
significantly outpacing supply. We have now commenced
shipping product to Pedanios, and through this wholly
owned Aurora subsidiary we are also applying for a license
to cultivate locally. Pedanios furthermore provides us with
access to the rapidly-developing EU market, with a potential
market size of several hundred million people.
Innovation is a key component of Aurora’s DNA, and
we are leading the cannabis sector in the integration of
advanced technology across all areas of our operations.
We have significantly enhanced the customer experience by
launching the world’s first and only mobile application for
the purchase of medical cannabis. We have also invested
in advanced production technologies, as evidenced by
our collaboration with Radient Technologies, and the
adoption of world-leading agricultural technologies at our
new facilities. We believe these investments will deliver
industry-leading production per square foot, and ultra-low
production costs.
We have defined an aggressive growth strategy and we are
executing exceptionally well on it. This has been possible
due to the continued support from our shareholders, and,
of course, the incredible dedication and hard work of our
people – whom we call “the A-Team”. The Aurora Standard
continues to be the industry benchmark, and I look forward
to sharing all the exciting news with you as we reach new
milestones on our journey, building a globally dominant
cannabis company.
Yours faithfully,
Terry Booth, CEO
AURORA CANNABIS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and twelve month periods ended June 30, 2017
Aurora Cannabis Inc. 13
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
This Management’s Discussion and Analysis (“MD&A”) reports on the consolidated financial condition
and operating results of Aurora Cannabis Inc. (“the Company” or “Aurora”) for the three and twelve month
periods ended June 30, 2017. The MD&A should be read in conjunction with the Company’s audited
Consolidated Financial Statements for the year ended June 30, 2017 and notes thereto (the “Financial
Statements”) which have been prepared in accordance with International Financial Reporting Standards
(“IFRS”).
The Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, Aurora
Marijuana Inc. (“AMI”), Aurora Cannabis Enterprises Inc. (“ACE”), 1769474 Alberta Ltd. (“1769474”),
Australis Capital Inc. (“ACI”), CanvasRx Inc. (“CanvasRx”), 10094595 Canada Inc., Peloton
Pharmaceuticals Inc. (“Peloton”), and Pedanios GmbH (“Pedanios”). All significant intercompany balances
and transactions have been eliminated on consolidation.
All dollar amounts referred to in this MD&A are expressed in thousands of Canadian dollars, except for
share and per share amounts, and where indicated otherwise.
The Company’s continuous disclosure documents including Annual Information Forms are available on
SEDAR at www.sedar.com.
This MD&A has been prepared as of September 25, 2017.
NON-IFRS MEASURES
The Company has included certain non-IFRS performance measures throughout this MD&A, including cash
cost of sales and cash cost to produce dried cannabis, each as defined in this section. The Company employs
these measures internally to measure its operating and financial performance and to assist in business
decision making.
The Company believes that these non-IFRS financial measures, in addition to conventional measures
prepared in accordance with IFRS, enable investors to evaluate the Company’s operating results, underlying
performance and future prospects in a manner similar to Aurora management.
As there are no standardized methods of calculating these non-IFRS measures, the Company’s methods may
differ from those used by others, and accordingly, the use of these measures may not be directly comparable
to similarly titled measures used by others. Accordingly, these non-IFRS measures are intended to provide
additional information and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS.
Cash Cost of Sales and Cash Cost to Produce Dried Cannabis
Cash cost of sales of dried cannabis is calculated by taking the total IFRS cost of sales and removing the
effect of changes in fair value of biological assets, non-cash production costs, oil conversion costs, cost of
sales from service revenue, and purchases from other Licensed Producers (“LP’s”), all divided by the total
number of grams of dried cannabis produced in the period.
Cash cost to produce dried cannabis is cash cost of sales less packaging costs (post-production cost).
14 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Management believes these measures provide useful information as they measure the efficiency of
production and may be a benchmark of the Company against its competitors.
AURORA OVERVIEW
The Company is in the business of producing and distributing medical marijuana consisting of dried
cannabis and cannabis oil, pursuant to the Access to Cannabis for Medical Purposes Regulations
(“ACMPR”). Aurora received its license to produce and sell medical cannabis on February 17, 2015 and
November 27, 2015, respectively. The Company received its license to produce and sell cannabis oil
products on February 16, 2016 and January 20, 2017, respectively.
Aurora’s current principal market is patients who are authorized to use medical cannabis in Canada. Under
the ACMPR, Aurora sells dried cannabis and cannabis oil, offering delivery to patients directly through
secure physical delivery services, as well as ordering services through the phone and innovative means such
as the Company’s online shop and mobile application. Aurora currently sells dried medical cannabis at
$9.00 per gram with compassionate pricing set at $6.00 per gram and cannabis oils at $95.00 per 30 milliliter
bottle with compassionate pricing set at $65.00 per 30 milliliter bottle.
Aurora is one of Canada’s largest and fastest-growing sellers of cannabis (flower & oils). The Company
produces and distributes high quality medical cannabis products with strong brand recognition to the
Canadian medical cannabis market, is well positioned to gain significant market share of the expected adult
usage market in Canada, and is a leader in the international expansion of the medical cannabis market.
Aurora’s strategy and vision is to build a leading, integrated global cannabis company through the
construction of highly-efficient purpose-built facilities that allow the Company to produce significant
volumes of low-cost, high quality cannabis, an aggressive and strategically focused international expansion,
strong brand differentiation, and industry leading board, senior management and production teams. Aurora
expects this strategy will deliver strong and sustainable shareholder value as the Company gains and retains
significant market share of the domestic and international medical cannabis markets, as well as the Canadian
adult usage market.
The Company operates a purpose-built 55,200 square foot production facility based in Mountain View
County, Alberta with a current annual capacity of approximately 5,400 kilograms of high quality cannabis.
Aurora also has 7.7 million square feet for land available at the Mountain View site for potential future
expansion. Alberta is an ideal production location due to low energy, labour and tax costs.
Aurora is currently constructing two additional production facilities in Canada:
• Edmonton, Alberta: an 800,000 square foot production facility “Aurora Sky” at the Edmonton
International Airport
• Pointe-Claire, Quebec: a 40,000 square foot production facility on Montreal’s West Island.
Aurora also owns Pedanios, a leading wholesale importer, exporter, and distributor of medical cannabis in
the European Union ("EU"), based in Germany. In addition, the Company holds approximately 9.6% of the
issued shares (12.9% on a fully-diluted basis) in the leading extraction technology company Radient
Technologies Inc. (“Radient”), based in Edmonton, and is the cornerstone investor with a 19.9% stake in
Aurora Cannabis Inc. 15
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Cann Group Limited (Cann Group”), the first Australian company licensed to conduct research on, and
cultivate, medical cannabis.
The Company’s common shares trade under the symbol “ACB” on the Toronto Stock Exchange (“TSX”)
and under the symbol “ACBFF” on the United States OTCQX Market Exchange.
Financial and Operational Highlights
Active registered patients (1)
Grams sold
Grams produced
Q4 2017
Q3 2017
Q2 2017
Q1 2017
#
16,400
755,059
1,164,683
#
13,110
653,008
846,849
#
12,200
538,045
670,322
#
8,200
435,720
354,975
(In CDN $000’s unless otherwise noted)
Revenues
Average selling price per gram
Cash cost of sales per gram (2)
Cash cost to produce per gram (2)
Cash and cash equivalents
Working capital
Investment in capital assets
(1) As of the date hereof, the Company has over 20,000 active and pending registered patients.
(2) Cash cost of sales per gram and cash cost to produce per gram are non-IFRS financial measures that
do not have a standardized meaning under IFRS and may not be comparable to other companies. See
definitions earlier in this document and reconciliation under “Results of Operations”.
$
5,936
7.45
2.09
1.91
159,796
170,142
19,985
$
5,175
6.64
2.31
1.91
111,116
126,530
10,464
$
3,885
5.96
2.56
2.13
55,846
60,060
4,158
$
3,071
6.32
3.89
3.89
23,194
23,213
645
RECENT DEVELOPMENTS (SUBSEQUENT TO JUNE 30, 2017)
Continued Strong Patient and Revenue Growth
• As of the date of this report, Aurora has surpassed 20,000 active and pending registered patients less
than 21 months after the Company’s first product sale in January 2016. Management believes this to
be the fastest rate of patient registration for a Licensed Producer after the launch of commercial
operations. Aurora has registered over 3,500 patients since the fiscal year ended June 30, 2017.
• On July 1, 2017, Aurora increased the prices of its dried cannabis strains from $8.00 to $9.00 per
gram (from $5.00 to $6.00 per gram for low-income patients).
• August 2017 was a record month with gross product sales in excess of 328,322 grams and gross
revenues exceeding $3.1 million from the sale of medicinal cannabis.
16 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
• CanvasRx remains the leading Canadian network of cannabis counseling and outreach centres, with
more than 29,000 registered patients. Over 8,400 medical doctors across Canada have referred
patients to CanvasRx or its affiliated medical clinics. On September 12, 2017, CanvasRx opened its
first location in British Columbia, located in Vancouver. This opening is the 25th CanvasRx location
and the 7th opened in 2017.
Capacity Expansion
• The construction of Aurora Sky at the Edmonton International Airport in Alberta is progressing well
with first harvest expected in early 2018. At 800,000 square feet, with state-of-the-art technology and
automation, Aurora Sky is expected to produce over 100,000 kilograms annually and deliver
significant economies of scale for Aurora. Located on airport land, Aurora Sky is ideally positioned
for increased domestic and international distribution. On June 16, 2017, Aurora held an official
groundbreaking at Aurora Sky, with participation by the mayors of Leduc County, the City of Leduc,
and the Alberta Minister of Municipal affairs, amid broad media coverage of the economic
development benefits generated by the project, valued at more than $100 million.
• Construction upgrades are nearly complete at the Company’s Pointe-Claire, Québec facility. The
Company expects that production at this 40,000 square foot facility will commence before the end of
2017 with first harvest expected in early 2018.
Significant Advancements on International Expansion
• The Company entered into a technical services agreement with Cann Group to facilitate an exchange
of information and support across areas including the cultivation and processing of medical cannabis,
extraction and manufacturing technology, and analysis of cannabis extracts.
• Pedanios passed the first stage of the tender application process to become a licensed producer of
medical cannabis in Germany. The second and final stage of the application process involves a
competitive bid proposal and contract negotiations to cultivate, process, store, package and deliver
cannabis for medical purposes in Germany. Results of the tender process are expected before the end
of 2017.
• In August 2017, Aurora’s Mountain View facility received EU GMP certification – the standard
required by the German government for export to that market.
• In September 2017, the Company received all the required permits to ship dried cannabis flower from
Canada to Germany, enabling the Company to begin supplying the German medical cannabis market
through Pedanios. On September 18, 2017, the Company shipped its first 50 kilograms of dried
cannabis from its facility in Mountain View County, Alberta, to Berlin-based Pedanios, with further
ongoing shipments planned. As of the date of this report, German import permits for additional
product have been secured, and ongoing, regular shipments are scheduled.
Continued Capital Markets Cadence
• Graduated from the TSX Venture Exchange to the Toronto Stock Exchange on July 24, 2017.
• Approximately $87 million in additional gross cash proceeds remain available from the future
exercise of warrants, stock options and compensation options/warrants.
Aurora Cannabis Inc. 17
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Investment in Product Line Expansion
• Aurora agreed to invest $3,247 in the private placement of Hempco Food and Fiber Inc. (“Hempco”)
of 10.6 million units at $0.3075 per unit. Upon closing, Aurora will own approximately 23% of the
share capital of Hempco on a fully diluted basis. In addition, the Company will be granted an option
to acquire certain shares from the majority owners of Hempco, which, upon exercise, would bring the
Company’s total ownership interest in Hempco to over 50% on a fully diluted basis.
Continued Strengthening of the Senior Management Team
• Aurora continued to build and strengthen its senior management team with talented and experienced
individuals to ensure the Company has the leadership to further grow and build shareholder value
through execution of domestic and international objectives and opportunities. In July and August
2017, the Company appointed Nilda Rivera as VP of Finance, Nick Whitehead as VP of Market
Development, Dieter MacPherson as VP of Production, and John Barnet as Chief Cultivator.
Other Key Subsequent Events
• The Company issued 3.18 million common shares, at a deemed price of $2.135 per common share,
to the vendors of CanvasRx in accordance with CanvasRx achieving certain earn-out payment
milestones for the period ended June 30, 2017, as set out in the share purchase agreement previously
announced on August 10, 2016.
• Received 14.3 million units and 0.8 million units of Radient on conversion of $2,000 debentures and
payment of final interest, respectively.
• Mr. Barry Fishman has resigned from the board of directors effective September 25, 2017. Mr.
Fishman will continue to provide limited direction to the Company until a new director has been
appointed.
KEY DEVELOPMENTS DURING THE FOURTH QUARTER 2017
Strong Revenue and Patient Growth
• Aurora generated revenues of approximately $5,936, up 15% or approximately $761 from Q3 2017,
including the sale of 755,059 grams of cannabis.
• The Company added over 3,000 patients during the fourth quarter of 2017, representing an increase
of 25% during the quarter.
• Aurora commenced sales of cannabis oils in April 2017. The Company has seen exceptional demand
for its cannabis oil products with oil sales now representing approximately 26% of gross revenues.
International Expansion
Acquisition of Pedanios – Germany and the EU
In May 2017, Aurora acquired Pedanios, a leading wholesale importer, exporter and distributor of medical
cannabis in the European Union. The Company acquired all of the issued and outstanding shares of Pedanios
for a total consideration of $23,728 consisting of €2,000 and 8,316,782 common shares of the Company.
18 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
As the country’s largest importer, exporter, and distributor of medical cannabis, Pedanios distributes to more
than 1,500 German pharmacies, and currently relies exclusively on imported medical cannabis products
from federally regulated producers in Canada and the Netherlands.
In July 2017, Pedanios successfully passed the first stage of the tender application process to become a
licensed producer of medical cannabis in Germany. As a result of initial stage evaluations, the German
Federal Institute for Medicines and Medical Products (“BfArM”), has requested Pedanios’ participation in
second and final stage of the application process which involves a competitive bid proposal and contract
negotiations to cultivate, process, store, package and deliver cannabis for medical purposes in Germany.
Preparations for the organization’s tender for a domestic cultivation license remain on track, including
detailed planning for the first ever indoor cannabis cultivation facility in Germany. Results of the tender
process are expected before the end of 2017.
In September 2017, the Company received its Export Permit issued by Health Canada, as well as provisional
import status from the German Bundesopiumstelle (Federal Narcotics Bureau), to import medical cannabis
products into Germany through Pedanios. On September 18, 2017, the Company shipped 50 kilograms of
dried cannabis from its facility in Mountain View County, Alberta, to Berlin-based Pedanios. This is the
first quantity of product sourced from Aurora’s Canadian cultivation base to supply the German medical
market. The Company has obtained German import permits for additional product and further ongoing
shipments are scheduled.
Upon delivery to Pedanios, the product will be distributed to a network of more than 1,500 pharmacies
across Germany, a country of more than 82 million people. Germany currently represents the largest single
federally-legal medical cannabis market in the world, and is experiencing a significant shortage of supply.
Of note, Germany is the first country in the world to cover the cost of medical cannabis, for any therapeutic
application approved by a physician, through its national health insurance system. The market for medical
cannabis in Germany is expected to expand rapidly.
Pedanios is also actively progressing discussions regarding entry into other European jurisdictions.
Cornerstone Investment in Cann Group IPO – Australia
On May 2, 2017, Aurora participated in Cann Group Limited’s initial public offering on the Australian
Stock Exchange (ASX: CAN) for A$6.5 million, and now holds 19.9% of the shares issued and outstanding
in Australia’s first licensed cannabis company.
Cann Group is building a world-class business focused on breeding, cultivating and manufacturing medical
cannabis for sale and use within Australia.
Cann Group was issued Australia’s first medical cannabis cultivation license in March 2017, in addition to
Australia’s first medical cannabis research license in February 2017. The company has also been issued
permits that facilitate the establishment of breeding plants for propagation purposes; a research program
being undertaken with Australia’s Federal research agency, the Commonwealth Scientific and Industrial
Research Organization (“CSIRO”), to develop unique cannabis extracts; and the supply of plant material
for manufacturing into medical cannabis products for patient use.
Aurora Cannabis Inc. 19
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
On July 18, 2017, Aurora entered into a technical services agreement with Cann Group, which covers the
period until the end of 2022, to facilitate an exchange of information and support across areas including the
cultivation and processing of medical cannabis, extraction and manufacturing technology, and analysis of
cannabis extracts.
Cann Group successfully completed the harvest of its first cultivation cycle of medicinal cannabis at the
company’s southern facility in Victoria. Cann Group is producing medicinal cannabis for manufacturing
into a final product that can be accessed by patients via clinical trials, or through the TGA’s Authorized
Prescriber or Special Access Scheme.
Cann Group completed a licensing and distribution agreement with CannaKorp, Inc. to import and sell the
Cannacloud vaporizing device and to produce medical cannabis pods to be used with it. The vaporizing
system will be sold as an open platform for licensed medicinal cannabis cultivators looking to have their
cannabis available via a vaporization device.
Domestic Expansion
On April 28, 2017, the Company completed the acquisition of Peloton, a late-stage ACMPR applicant out
of bankruptcy protection, including a 40,000-square foot cannabis production facility in Pointe-Claire,
Quebec. The Company is completing construction and development of the facility which will feature
selected new technologies that will also be employed at Aurora Sky. Production is expected to begin by the
end of 2017. At full capacity, the facility is expected to be capable of producing up to 3,900 kilograms of
high quality cannabis per year. The Company acquired Peloton for a total consideration of $9,139 consisting
of $4,562 in cash, 573,707 common shares of the Company and acquisition related costs of $3,091. The
total consideration is subject to change pending settlement of all claims with previous creditors by the
bankruptcy trustee.
Strategic Investment in Hempco
Subsequent to June 30, 2017, the Company entered into a subscription agreement to purchase 10,558,676
units of Hempco at $0.3075 per unit for gross proceeds of $3,247 (the “Investment”). Each unit will consist
of one common share and one share purchase warrant. Each warrant will be exercisable at a price of $0.41
per share for a period of two years, subject to accelerated expiry if Hempco’s shares trade above a VWAP
of $0.65 for any 30-day period following closing of the Investment. The subscription agreement provides
that closing of Hempco’s private placement is subject to conditions, including the execution of an option
agreement with the majority owners of Hempco and an investor rights agreement, TSX Venture, TSX and
Hempco disinterested shareholder approval. Upon closing, the Company will hold approximately 23% of
the share capital of Hempco on a fully-diluted basis.
On September 15, 2017, the Company and Hempco executed an Option Agreement (the “Option”) to acquire
up to an aggregate of 10,754,942 shares from the majority owners of Hempco, which, upon exercise, would
bring the Company’s total ownership interest in Hempco to over 50% on a fully diluted basis. If the
Company elects to exercise the Option, the shares will be acquired in tranches, the pricing of which, is
contingent on certain performance milestones of Hempco.
On September 15, 2017, the Company and Hempco executed an Investor Rights Agreement that will allow
Aurora to nominate two directors to the Hempco Board of Directors, require that Hempco adopt an
20 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
expenditure policy, provide for certain matters related to cannabidiol extraction from hemp, and provide
Aurora with anti-dilution protection.
The Option and Investor Rights Agreement will become effective on the closing of Hempco’s private
placement which remains subject to disinterested Hempco shareholder approval.
Hempco will be calling an extraordinary meeting of its shareholders for the purpose of asking them to
approve the change of control that will result from completion of the Private Placement transaction.
Although the Investor Rights Agreement will not take effect until the closing of the Private Placement,
Hempco has signed an undertaking, effective immediately, to use reasonable efforts to appoint the two
Aurora nominees to the Hempco Board immediately, that it will use reasonable efforts to find a suitable
candidate to be the new Chief Executive Officer of Hempco, with the goal of having the new candidate in
place as soon as reasonably possible, that Hempco will adopt an expenditure policy, and that funds
previously advanced by Aurora will be used to develop the Hempco facility in Nisku, Alberta, and for the
settlement of certain Hempco payables. As of the date of this MD&A, the Hempco Board of Directors has
appointed Mr. Allan Cleiren, Aurora’s Chief Operating Officer, and Mr. Steve Dobler, Aurora’s President
and Director, as directors of Hempco.
Hempco is one of the world's largest industrial producers of hemp and hemp products, and currently offers
three primary product lines: (1) bulk and packaged food products (e.g. hemp protein powder, hemp seeds
or hearts, hemp oil etc.); (2) hemp fibre; and (3) nutraceuticals. Hempco's line of packaged foods are sold
under the brand "Planet Hemp" and are distributed globally in seven countries.
Industrial hemp grown under contract to Hempco contains efficient extractable quantities of cannabidiol,
(CBD) a compound shown through a growing body of anecdotal and scientific evidence to have considerable
medical benefits in symptom management.
Aurora anticipates, based on recommendation by the Federal Task Force on Cannabis Legalization, that the
regulations currently preventing industrial hemp producers from harvesting leaves, flowers and buds, which
contain CBDs will be revised to allow for the processing of CBDs. Cannabidiol does not have any
intoxicating effects such as those caused by tetrahydrocannabinol (THC).
The market for CBDs in the form of capsules, oils, and topicals is expected to show significant growth, and
Aurora considers the proposed transaction with Hempco to be a strategic initiative to enable market share
dominance in this attractive segment.
Through its relationship with Radient, the Company has access to an efficient, cost-effective, high-
throughput methodology of producing CBD-based products at large scale, thus providing the Company with
a considerable competitive advantage in addressing this growing market when CBD extraction from hemp
is allowed.
Aurora Cannabis Inc. 21
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Strategic Relationship with Radient Technologies Inc.
On June 5, 2017, Aurora and Radient successfully completed their joint venture research activity and
confirmed the effectiveness of Radient’s MapTM technology and associated continuous flow design for
extracting cannabinoids from dried cannabis.
Based on the positive results of the study, Radient and Aurora have agreed to negotiate an exclusive
development and commercialization agreement for the use of Radient’s technology, and to continue the
exclusive joint venture for additional scientific research and development of cannabis and hemp products.
Strengthened Capital Position
Aurora significantly strengthened its balance sheet and liquidity position during the fourth quarter of 2017
with $76,687 in new financing as follows:
• $75 Million Bought Deal Convertible Debentures: On May 2, 2017, the Company closed its bought
deal private placement of unsecured convertible debentures in the aggregate principal amount of
$75,000. The debentures bear interest at 7% per annum, payable semi-annually and mature on May
2, 2019. The debentures are convertible into common shares of the Company at a price of $3.29 per
share, at the option of the holder, subject to a forced conversion if the volume weighted average price
of the Company’s common shares exceeds $4.94 per share for 10 consecutive trading days. During
the year ended June 30, 2017, the Company issued 45,593 common shares on the partial conversion
of $150 principal amount of these debentures.
• $1.6 Million on Exercise of Securities: During the three months ended June 30, 2017, the Company
raised $1,687 on the exercise of warrants, options and compensation options.
• During the quarter, the Company also converted approximately $18,521 of convertible notes into
common shares.
For the year ended June 30, 2017, Aurora raised $213,009 in equity and convertible debt financings to
provide the capital necessary to execute the Company’s aggressive domestic and international growth
strategies.
Continued Strengthening of the Senior Management Team
During the fourth quarter of 2017, Aurora appointed Glen Ibbott as Chief Financial Officer, Allan Cleiren
as Chief Operating Officer, Debra Wilson as Vice President of Human Resources, and Andrea Paine as
Director of Quebec Affairs, each of whom has significant leadership experience in growth oriented
organizations.
22 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
SELECTED ANNUAL INFORMATION
Total Revenue
Net loss
Net loss per share – basic and diluted
Total assets
Total non-current financial liabilities
Cash dividends per-share
June 30, 2017
$
18,067
(12,968)
(0.05)
322,679
63,818
Nil
June 30, 2016
$
1,439
(5,723)
(0.04)
18,396
4,440
Nil
June 30, 2015
$
-
(9,518)
(0.12)
13,527
2,292
Nil
The Company commenced commercial operations in February 2015 and began generating revenues from
the sale of medical cannabis in January 2016.
The Company operates in two segments, the production and sale of medical cannabis and patient counselling
and outreach services. Patient counselling became a segment on the completion of the acquisition of
CanvasRx on August 17, 2016. Revenue is generated in two geographical locations, in Canada and in
Germany. Germany became a geographical segment on the completion of the acquisition of Pedanios GmbH
on May 30, 2017.
Net loss has increased from the previous year due to greater expenditures relating to the increase in
production at its Mountain View County facility, expansion of its client care centre and related sales costs
resulting directly from registration of new patients, scale-up in preparation for pending adult consumer
legalization, as well as acquisition and due diligence expenditures relating to the Company’s domestic and
international expansion strategy.
The increase in total assets during the year was primarily due to increases in cash and cash equivalents
generated from debt and equity financings, biological assets and inventory as the Company ramped up
production, property, plant and equipment related to the construction of Aurora Sky and the Company’s
Pointe-Claire facility as well as new strategic investments in business and asset acquisitions.
Non-current financial liabilities increased from the previous year primarily due to the $75,000 convertible
debenture financing completed in May 2017.
Aurora Cannabis Inc. 23
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
SUMMARY OF QUARTERLY RESULTS
The following table presents selected financial information from continuing operations for the most recent
eight quarters:
Quarter ended
(In CDN $000s)
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
December 31, 2015
September 30, 2015
Revenue
$
5,936
5,175
3,885
3,071
1,220
219
-
-
Net Income (Loss)
$
(4,816)
139
(2,678)
(5,613)
(7,474)
2,527
593
(1,369)
Earnings (Loss)
per share
$
(0.01)
-
(0.01)
(0.03)
(0.05)
0.02
-
(0.01)
The net loss for the quarter ended June 30, 2017 was primarily attributable to the unrealized loss on
debentures, increased finance costs relating to debentures, share-based payments, acquisition and project
evaluation costs, and increased expenditures due to scaling up operations.
The net income for the quarter ended March 31, 2017 was primarily attributable to the unrealized gain on
the changes in fair value of biological assets and unrealized gain on debenture and marketable securities.
The net losses for the quarters ended September 30, 2016 and June 30, 2016 were primarily due to a decrease
in unrealized gain on changes in fair value of biological assets and increased expenditures due to increased
corporate activities related to scaling up of its operations, the acquisition of CanvasRx and various equity
and debt financings.
The net income for the quarters ended March 31, 2016 and December 31, 2015 was primarily attributable
to the unrealized gain on the changes in fair value of biological assets.
RESULTS OF OPERATIONS
During the twelve months ended June 30, 2017, the Company continued to advance its aggressive business
and operating strategies that included increased operational and production efficiencies realized from the
Mountain View production facility, the construction of its Aurora Sky and Pointe-Claire facilities, continued
registration and servicing of new and existing patients, increasing production to meet current and anticipated
increases in product demand, strategic acquisitions and investment opportunities and several financing
transactions resulting in equity and debt offerings.
During the prior year, the Company commenced commercial operations and focused its efforts on launching
its product, revamping its website, registering patients, strengthening board governance through the
appointment of independent directors, hiring key employees to advance its business operations and raising
capital through equity and debt financings to fund business operations.
24 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Revenues
Quarter ended
Sales
Revenue (1) Discounts
$
(1,352)
(1,006)
(837)
(731)
(384)
(92)
-
-
$
6,979
5,342
4,044
3,483
1,604
311
-
-
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
December 31, 2015
September 30, 2015
(1) Sales revenue is from the sale of cannabis products, net of returns and allowances.
Net Sales
Revenue
$
5,627
4,336
3,207
2,752
1,220
219
-
-
Service
Revenue
$
309
839
678
319
-
-
-
-
Total
Revenue
$
5,936
5,175
3,885
3,071
1,220
219
-
-
Grams of
Cannabis
Sold
#
755,059
653,008
538,045
435,720
200,310
56,770
-
-
Average Net
Selling Price
per Gram
$
7.45
6.64
5.96
6.32
6.09
3.86
-
-
Revenues for the three months ended June 30, 2017 were $5,936 as compared to $1,220 in the three months
ended 2016. The increase in revenues during the fourth quarter was primarily due to continued increase in
patients as well as an increase in the average selling price per gram of medical cannabis. In addition, the
Company generated additional revenues from its subsidiaries, CanvasRx and Pedanios, related to patient
counselling and outreach services and wholesale distribution of medical cannabis to pharmacies in Germany
respectively. Revenues for the fourth quarter consisted of the sale of dried medical cannabis and cannabis
oils of $5,627 and patient counselling and outreach services of $309. Of the total $5,936 revenues in the
fourth quarter, $439 was generated in Germany and $5,497 was generated in Canada. Total product sold for
the period was 755,059 grams of dried cannabis and cannabis oils at an average net selling price of $7.45
per gram (200,310 grams of dried cannabis in the fourth quarter of 2016 at an average selling price of $6.09
per gram).
Revenues for the twelve months ended June 30, 2017 were $18,067 as compared to $1,439 in the twelve
months ended 2016. The increase in revenues during the year was primarily due to patient growth and the
increase in the average selling price per gram of medical cannabis. The Company also generated additional
revenues related to patient and counselling and wholesale distribution of medical cannabis in Germany.
Revenues for the year consisted of the sale of dried medical cannabis and cannabis oils of $15,922 and
patient counselling and outreach services of $2,145. Of the total $18,067 revenues in the year, $439 was
generated in Germany and $17,628 was generated in Canada. Total product sold for the year was 2,381,832
grams of dried cannabis and cannabis oils at an average selling price of $6.68 per gram.
Aurora Cannabis Inc. 25
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Aurora has a compassionate pricing program that helps low-income households and patients on provincial
or federal assistance programs have access to its medical cannabis. Aurora’s dried medical cannabis are
currently priced at $9.00 per gram with compassionate pricing set at $6.00 per gram, and cannabis oils at
$95.00 per 30 milliliter bottle with compassionate pricing set at $65.00 per 30 milliliter bottle. During the
year ended June 30, 2017, approximately 30% of registered patients purchased medical cannabis through
the compassionate pricing program (2016 – 23%). For the three months ended June 30, 2017, approximately
37% of registered patients purchased medical cannabis through the compassionate pricing program (2016 –
25%).
The Company received its license from Health Canada to sell medical cannabis under the ACMPR on
November 27, 2015 and generated its first product sale on January 5, 2016. In January 2017, the Company
obtained its cannabis oil sales license and commenced the sale of cannabis oils in April 2017.
From the commencement of sales in January 2016 to August 31, 2017, the Company has sold a total of
3,263,161 grams of medical cannabis at an average selling price of $6.89 per gram.
Cost of Sales
Included in cost of sales for the three and twelve months ended June 30, 2017, were the unrealized gains on
changes in fair value of biological assets of $3,230 and $7,469 respectively, inventory expensed of $1,314
and $3,472 respectively, and production costs of $2,006 and $6,008 respectively.
Included in cost of sales for the three and twelve months ended June 30, 2016, were the unrealized loss on
changes in fair value of biological assets of $4,024 and unrealized gains of $3,004 respectively, inventory
expensed of $185 and $295 respectively, and production costs of $1,220 and $1,946 respectively.
The increase in production costs and inventory expensed to cost of sales during the three and twelve months
ended June 30, 2017 was largely attributable to increases in production and production yields during the
periods. For the same periods in the prior year, the Company was in the early stages of production as it
commenced commercial operations in January 2016.
Biological assets consist of cannabis plants at various pre-harvest stages of growth which are recorded at
fair value less costs to sell at the point of harvest. Cost to sell are primarily related to shipping costs. At
harvest, the biological assets are transferred to inventory at their fair value which becomes the deemed cost
for inventory. Inventory is later expensed to cost of sales when sold and offset against the unrealized gain
on biological assets. Production costs are expensed through cost of sales.
26 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Cash Cost of Sales
The Company calculates cash cost of sales of dried cannabis, on a total and per gram basis, as follows:
Unaudited Non-IFRS Measure
(In CDN $000’s, except gram amounts)
Cost of sales (recovery) per IFRS
Add (less):
Changes in fair value of biological assets
Inventory expensed to cost of sales:
Cost of sales on service revenue
Cost of sales on products purchased
from other Licensed Producers
Production costs:
Oil conversion costs
Depreciation
Year end
Three months ended
Jun 30 ‘17 Jun 30 ‘17 Mar 31 ‘17 Dec 31’16 Sep 30 ‘16
$
$
$
$
$
2,011
90
(587)
(476)
2,984
7,469
3,230
2,620
2,881
(1,262)
(71)
(31)
(40)
6
(6)
(1,422)
(337)
(206)
(611)
(268)
(140)
(352)
(403)
(111)
263
(92)
-
(81)
-
(68)
Total cash cost of sales of dried cannabis
7,495
2,438
1,958
1,719
1,380
Grams produced in the period
Cost of sales per gram of dried cannabis
3,036,829
$2.47
1,164,683
$2.09
846,849
$2.31
670,322
$2.56
354,975
$3.89
Cash Cost to Produce Dried Cannabis
The Company calculates cash cost to produce, on a total and per gram basis, of dried cannabis as follows:
Unaudited Non-IFRS Measure
(In CDN $000’s, except gram amounts)
Year end
Three months ended
Jun 30 ‘17 Jun 30 ‘17 Mar 31 ‘17 Dec 31’16 Sep 30 ‘16
$
$
$
$
$
Cash cost of sales of dried cannabis
Less: packaging costs
Total cash cost to produce dried cannabis
7,495
(846)
6,649
2,438
(219)
2,219
1,958
(336)
1,622
1,719
(291)
1,380
-
1,428
1,380
Grams produced in the period
Cash cost to produce per gram of dried cannabis
3,036,829
$2.19
1,164,683
$1.91
846,849
$1.91
670,322 354,975
$3.89
$2.13
Grams of dried cannabis sold in the period
Cash cost of dried cannabis sold in the period
2,336,928
$5,768
710,155
$1,487
653,008
$1,509
538,045
$1,379
435,720
$1,695
Aurora began selling medical dried cannabis and cannabis oils in January 2016 and April 2017, respectively.
The continuing decrease in the cash cost to produce per gram from quarter to quarter was due to increased
production yields, resulting in more efficient allocation of costs and overhead. Total production costs are
expected to increase in the next year as the Company completes construction and begins producing cannabis
Aurora Cannabis Inc. 27
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
at its new facilities in Alberta and in Quebec. However, per gram production costs are expected to decrease
materially as the efficiencies from automation, scale and yield expertise are realized in the new Aurora
facilities.
Gross Profit
Gross profit was $5,846 and $16,056 for the three and twelve months ended June 30, 2017, respectively
compared to $4,209 gross loss and $2,202 gross profit for the three and twelve months ended June 30, 2016,
respectively. The gross profit during the periods was partially attributable to the net effect of changes in fair
value of biological assets.
Gross profit for the three months ended June 30, 2017 increased by 1% or $83 as compared to the previous
quarter, from $5,763 for the three months ended March 31, 2017 to $5,846 for the three months ended June
30, 2017. The increase in gross profit resulted from a gain on the effect of changes in fair value of biological
assets, offset by a 63% increase in production costs (mainly wages) and inventory expensed to cost of sales
as a result of scaling up of production.
General and Administration
Professional fees
Office and administration
Wages and benefits
Three months ended
June 30,
2016
$
507
133
440
2017
$
(712)
795
1,914
Twelve months ended
June 30,
2016
$
1,201
693
1,121
2017
$
1,793
1,450
3,570
1,997
1,080
6,813
3,015
General and administration costs increased by $917 and $3,798 for the three and twelve months ended June
30, 2017, respectively. The over-all increase was primarily attributable to increases in corporate and general
administrative activities of the Company as it scaled up its business operations, completed various equity
and debt financings, as well as other costs incurred related to ongoing negotiations for additional financings
and investment opportunities. In the prior periods, the Company commenced its business operations as it
transitioned to a fully licensed producer.
Professional fees decreased by $1,219 and increased by $592 during the three and twelve months ended
June 30, 2017, respectively. The overall increase for the year resulted from various legal, regulatory,
advisory and other fees as the Company completed various transactions related loans and investments, debt
and equity financings and due diligence activities, and entered into various consulting contracts,
employment agreements, and other business contracts to support its increasing business operations. The
Company also incurred legal fees related to litigations, mediation and/or arbitration. The Company settled
all outstanding claims during the year. As of the date hereof, management is not aware of any material
claims or possible claims against the Company. Regulatory fees increased as a result of the transfer of the
Company’s listing from the Canadian Securities Exchange to the TSX Venture Exchange and from the
OTCQB to the OTCQX as well as various acquisitions and financings completed during the year. The
28 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
decrease in the fourth quarter was primarily due to a reclassification of professional fees relating to
acquisition and project evaluation costs which is separately disclosed on the consolidated statement of
comprehensive loss.
Wages and benefits increased by $1,474 and $2,449 during the three and twelve months ended June 30,
2017, respectively. The increase during the year was primarily due to hiring of an aggregate of 25 (2016 -
9) staff in the finance, corporate and human resources (HR) departments. During the fourth quarter, the
Company accrued management and employee bonuses, and hired a total of 3 in finance and HR (2016 - nil).
Additionally, management compensation increased as the Company strengthened its management team with
the hiring of new a CFO and COO to achieve its growth objectives and execute its aggressive domestic and
international expansions strategy.
Acquisition and Project Evaluation Costs
Acquisition and project evaluation costs increased by $1,551 and $1,551 during the three and twelve months
ended June 30, 2017, respectively. The Company incurred legal, consulting and advisory fees relating to
business acquisitions, investments and due diligence activities as part of its domestic and international
expansion. These costs were reclassified from professional fees during the fourth quarter.
Sales and Marketing
Consulting fees
Branding, public and media relations, and tradeshows
Selling and client care expenses
Wages and benefits
Three months ended
June 30,
2016
$
58
205
382
213
2017
$
1,297
353
1,376
580
Twelve months ended
June 30,
2016
$
93
661
493
459
2017
$
3,678
1,073
4,015
1,504
3,606
858
10,270
1,706
Consulting fees increased by $1,239 and $3,585 during the three and twelve months ended June 30, 2017,
respectively. The increase was primarily attributable to service fees paid during the three and twelve months
ended June 30, 2017 of $1,290 and $3,659, respectively to Canadian Cannabis Clinics pursuant to an
agreement to provide operational, administrative and consulting services to CanvasRx. No such expense
was incurred in the prior periods. Since the acquisition of CanvasRx in August 2016, the Company has
increased its number of active and pending registered patients from approximately 5,000 to over 20,000, of
which, 7,000 are CanvasRx patients that have registered with Aurora.
Selling and client care expenses increased by $994 and $3,522 during the three and twelve months ended
June 30, 2017, respectively. Selling expenses consist of shipping costs, sales fees and commissions and
payment processing fees. Client care expenses relate to patient registrations and maintenance, and consist
of rent, utilities, and office expenses for the client care centre. The increase in selling and client care
expenses is directly related to the increase in sales during the periods and the expansion of the client care
Aurora Cannabis Inc. 29
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
centre. Selling and client care expenses in the prior periods represent less than six months of costs as the
Company commenced sales of medical cannabis in January 2016.
Wages and benefits increased by $367 and $1,045 during the three and twelve months ended June 30, 2017,
respectively, as during the year, the Company strengthened its senior management team and hired a total of
44 (2016 – 17) staff mainly in client care as well as other personnel in compliance, Information Technology
(IT), public affairs and marketing. During the fourth quarter, the Company hired a total of 14 (2016 - 11) in
client care, compliance, IT and marketing. The increase in personnel in the client care centre is required to
support the increase in patient volume during the periods. Since the beginning of commercial operations in
January 2016, the Company has acquired approximately 16,400 active registered patients as of June 30,
2017.
Research and Development
Research and development costs for the three and twelve months ended June 30, 2017 were $123 and $314,
respectively compared to $250 and $565 for the three and twelve months ended June 30, 2016, respectively.
During the year, research and development included the continued development of the cannabis grow
process, method development for extraction of cannabis oils, packaging improvements, and process
validations related to laboratory procedures. Research and development costs were higher in the prior year
primarily due to the experimental research and development of cannabis oils in preparation for
commercialization, in addition to expenditures relating to the research, development and documentation of
the cannabis grow process and genetics of various cannabis strains.
Share-based Payments
The Company recorded share-based payments of $2,062 for 2,705,000 stock options granted and vested
during three months ended June 30, 2017 and $7,584 for 12,170,000 stock options granted and vested during
twelve months ended June 30, 2017.
During the three and twelve months ended June 30, 2016, the Company recorded share-based payments of
$203 and $913, respectively for stock options and warrants granted and vested. 1,250,000 and 4,877,500
options were granted during the three and twelve months ended June 30, 2016, respectively.
Finance and Other Costs
Finance and other costs were $459 and $6,582 during the three and twelve months ended June 30, 2017,
respectively compared to $938 and $1,444 for the three and twelve months ended June 30, 2016,
respectively.
During the three months ended June 30, 2017, included in finance and other costs were financing fees,
accretion and interest charges from aggregate unsecured convertible debentures of $115,000 raised during
the period. Of these debentures, $35,530 were converted into 23,345,777 common shares during the period.
During the twelve months ended June 30, 2017, accretion of $905 was accelerated related to a prepayment
of $4,000 interest free long-term related party loans. In addition, financing fees of $681 were fully amortized
and a prepayment interest fee of $253 was paid as a result of a prepayment of $4,000 in short-term loans.
30 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Financing fees related to the fair value of 2,712,500 warrants of $877 was recognized as financing fees.
These warrants were issued as consideration to the amendment of the terms of certain convertible
debentures. The Company repaid aggregate loans of $10,215 during the twelve months ended June 30, 2017.
During the three and twelve months ended June 30, 2016, finance and other costs mainly consisted of interest
and accretion expenses on the $2,500 and $3,000 related party loans which bore interest at 4%, a $3,000
secured loan which bore interest at 19.5%, and a $1,650 secured loan which bore interest at 12%.
Other Income (Expenses)
The Company recorded an unrealized loss on debenture of $3,138 and $1,135 during the three and twelve
months ended June 30, 2017, respectively related to a fair value change on its investment of $2,000
convertible debenture during the year. The Company initially recorded an unrealized gain at inception on
the debenture of $12,564 which is being amortized over two years.
The Company recorded an unrealized gain on marketable securities at inception of $1 and $1,334, and an
unrealized loss on derivative of $153 and $335 during the three and twelve months ended June 30, 2017,
respectively related to its investment during the year in a private placement of 2,777,800 units. Each unit
consisted of one common share and one-half of a share purchase warrant. In addition, the Company recorded
in other comprehensive income an unrealized gain on marketable securities of $6,077 and $6,077 during the
three and twelve months ended June 30, 2017, respectively related to the change in fair value of the share
component of the units.
Please see note 4 to the Company’s consolidated financial statements for a full disclosure on the investments.
Income Tax Recovery
During the twelve months ended June 30, 2017, the Company recorded a deferred tax recovery of $4,277
primarily related to convertible debenture financings of $115,000 and the CanvasRx and Pedanios
acquisitions during the year.
The current tax recoveries for the current and prior periods related to SR&ED claims.
LIQUIDITY AND CAPITAL RESOURCES
During the twelve months ended June 30, 2017, the Company generated revenues of $18,067 from
operations, and financed its current operations, growth initiatives, and met its capital requirements through
debt and equity financings. The Company’s objectives when managing its liquidity and capital resources
are to generate sufficient cash to fund the Company’s operating and working capital requirements.
Working capital as of June 30, 2017 was $170,142 as compared to a deficiency of $2,750 at June 30, 2016.
The increase in working capital of $172,892 was largely attributable to the increase in cash and cash
equivalents of $159,626 generated from debt and equity financings, new investments in securities of
$14,845 and increases in biological assets and inventory of $7,629 partially offset by an increase in accounts
payable of $7,067 due to production facility construction and contingent consideration payable of $13,221
related to performance milestones of a subsidiary.
Aurora Cannabis Inc. 31
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Marketable securities of $14,845 at June 30, 2017 mainly consisted of 21,562,314 common shares in an
Australian publicly traded medical cannabis company at a market price of A$0.625 per share. The Company
also holds 2,777,800 common shares in a Canadian publicly traded company.
Inventory at June 30, 2017 was $7,703 (2016 - $2,317) which consisted of dried cannabis of $5,845 (2016
- $2,230), cannabis oils of $1,676 (2016 - $Nil) and supplies and consumables of $182 (2016 - $87). The
increase in inventory resulted from increased production of dried cannabis and the addition of cannabis oils.
As at June 30, 2017, included in inventory was a provision of $1,630 (2016 - $785) to reduce inventory to
net realizable value. The adjustment to net realizable value took into account the compassionate pricing for
qualifying low income patients of $5.00 per gram of dried cannabis. Dried medical cannabis was sold at
$8.00 per gram since commencement of sales, and increased to $9.00 per gram in July 2017, with
compassionate pricing at $6.00 per gram. The Company commenced sales of cannabis oils in April 2017,
which are currently priced at $95.00 per 30 milliliter bottle with compassionate pricing at $65.00 per 30
milliliter bottle.
Biological assets at June 30, 2017 were to $4,088 (2016 - $1,845). At June 30, 2017, the Company expected
that the biological assets which consisted of plants at various stages of growth would yield approximately
599,245 grams (2016 – 227,449 grams) of medical cannabis when harvested. Biological assets increased
during the year as a result of higher yields.
The Company’s long term assets mainly consisted of property, plant and equipment of $45,523, of which
$11,662 related to the existing production facility in Alberta and $26,571 related to the ongoing construction
of the Aurora Sky facility, convertible notes receivable of $11,071, as well as goodwill of $41,100 and
intangible assets of $31,087 relating to business and asset acquisitions in the year.
Net cash and cash equivalents on hand increased from $259 as at June 30, 2016 to $159,796 as at June 30,
2017. The increase in cash and cash equivalents resulted mainly from net cash generated from financing
activities of $220,328 offset by net cash used for operations of $10,506, and investments and capital
expenditures of $50,475.
During the twelve months ended June 30, 2017, the Company significantly strengthened its balance sheet
and liquidity position with approximately $213,009 in new equity and debt financings. The Company
anticipates that it has sufficient liquidity and capital resources to meet all of its planned expenditures for the
next twelve months.
Operating Activities
For the twelve months ended June 30, 2017, cash flows used for operating activities were $10,506 compared
to $6,772 for the twelve months ended June 30, 2016. During the twelve months ended June 30, 2017, cash
flows used for operations resulted primarily from cash inflows from adjusted gross profit of $8,587 offset
by cash flows used for operating expenses of $15,563 and finance and other costs of $2,288 and cash
outflows of $1,242 related to changes in non-cash working capital.
32 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Investing Activities
For the year ended June 30, 2017, the Company had net cash outflows related to investing activities of
$50,475 as compared to $1,885 for the year ended June 30, 2016. Cash used in investing activities during
the year included the following:
•
•
•
•
•
•
construction of the new Aurora Sky facility of $22,873, and the purchase of production equipment,
computers and furniture, and building improvements of $2,845;
investments in a private placement of $7,877 and a convertible debenture of $2,000;
a promissory note receivable of $1,215;
acquisition of CanvasRx for net consideration and earn out cash payments of $4,641;
acquisition of Pedanios of $3,019 offset by cash balance assumed of $743; and
acquisition of Peloton of $6,748.
Investing activities during the prior year consisted mainly of the purchases of production equipment,
computers and furniture, and website design and development.
Financing Activities
Net cash flows provided by financing activities for the year ended June 30, 2017 were $220,328 compared
to $8,600 for the year ended June 30, 2016. During the year, the Company raised aggregate net cash proceeds
of $230,796 as follows:
• private placement of units for gross proceeds of $98,009 less share issue costs of $6,282;
• unsecured convertible debentures in the principal amount of $115,000 less financing fees of $5,027;
and
exercise of warrants and options for net proceeds of $29,096.
•
The above financing proceeds were offset by finance lease payments of $193 and repayments of loans
totaling $10,215 consisting of related party loans of $5,756 and third party loans of $4,459.
For the year ended June 30, 2016, the Company raised aggregate net cash of $12,517 from short and long
term loans, private placements, unsecured convertible debentures and from the exercise of options and
warrants. The proceeds were offset by financing fees paid on debentures of $316 and repayments of loans
totaling $2,352 consisting of related party loans of $510, related party advances of $842 and a third party
secured loan of $1,000.
Capital Resource Measures
The Company’s major capital expenditures in fiscal 2017 mainly consist of the construction of its 800,000
square foot highly-automated greenhouse in Alberta, Canada. See “Capacity Expansion”. The Company
believes it has sufficient cash and resources to fund the Company’s operations, meet its currently planned
growth and fund development and expansion activities for the next fiscal year.
Aurora Cannabis Inc. 33
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Contractual Obligations
As of June 30, 2017, the Company had the following financial commitments:
Contractual Obligation
Finance lease
Operating lease
Convertible notes
Office lease
Total
Total
$
452
143
79,470
2,772
82,837
Less than
1 year
$
107
60
-
624
791
1 to 3 years
$
345
83
79,470
1,374
81,272
After
3 years
$
-
-
-
774
774
Investment in Australis Holdings LLP
Each of ACI and its joint venture partner, AJR Builders Group LLC (“AJR”), holds a 50% interest in
Australis Holdings LLP (“AHL”), a Washington Limited Liability Partnership.
AHL purchased two parcels of land totaling approximately 24.5 acres (the “Property”) in Whatcom county,
Washington for USD$2,300,000 in 2015 with the initial intention to construct a new cannabis production
and processing facility. The Company subsequently decided not to move forward with US medical cannabis
production. This property is currently for sale.
Pursuant to a promissory note dated April 10, 2015, the Company through ACI loaned CAD$1,645 to AHL
to fund the purchase of the Property. The note bears interest at a rate of 5% per annum and matures on
October 31, 2017. In the event of a default, interest will be charged at 12% per annum. The note is secured
by a first mortgage on one parcel of the Property and a second mortgage on the other title as well as a general
security agreement granting ACI security over all present and after acquired property of AHL.
OFF-BALANCE SHEET ARRANGEMENTS
As at the date of this MD&A, the Company had no material off-balance sheet arrangements that have, or
are reasonably likely to have, a current or future effect on the financial performance or financial condition
of the Company.
34 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
TRANSACTIONS WITH RELATED PARTIES
Related Party Transactions
The Company entered into certain transactions with related parties during the years ended June 30, 2017
and 2016 as follows:
Goods and Services
Name and Relationship to Company
Transaction
Delcon Industries Ltd, a company controlled by Dale
Lesack, a director of ACE
Consulting fees paid for services as Production Facilitator.
Consulting fees
Twelve months ended
June 30,
2016
$
2017
$
150
150
Evolve Concrete, a company controlled by Chris Mayerson,
a director of ACE
Consulting fees paid for services as part-time (full-time in the prior year) Cultivator of the Company.
Consulting fees
61
150
Canadian Cannabis Clinics (“CCC”), a company in which
Joseph del Moral, is a common director
CCC provides operational, administrative and consulting services to CanvasRx.
Service fees
3,659
-
Superior Safety Codes (“Superior”), a company controlled
by Terry Booth, CEO and Steve Dobler, President of the
Company
Rent for corporate offices in Edmonton and Calgary as well as accounting and administrative support at these offices
pursuant to an Administrative Services and Office Space Agreement dated January 1, 2016.
Rent, accounting and
administration
157
130
Belot Business Consulting Corp, a company controlled by
Neil Belot, Chief Global Business Development Office
Consulting fees paid related to the CanvasRx acquisition.
Consulting fees
780
-
748086 Alberta Ltd., a company controlled by Jason Dyck, a
director of the Company
Consulting fees related to Scientific Research and Development Services.
Consulting fees
44
59
8115966 Canada Inc. (“8115966”), a company controlled by
Michael Singer, a director of the Company
Consulting fees for financial and other advisory services pursuant to a consulting agreement effective April 18,
2016 with 8115966.
Consulting fees
57
20
Aurora Cannabis Inc. 35
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Key Management Personnel
Name and Relationship to Company
Transaction
(In CDN $000s)
Twelve months ended
June 30,
2016
$
125
2017
$
288
Lola Ventures Inc. (“Lola”), a private company controlled
by Terry Booth, CEO
Effective January 1, 2017, the Company entered into an employment agreement with Mr. Booth.
Management fees
1771472 Alberta Ltd. (“1771472”), a private company
controlled by Steve Dobler, President
Effective January 1, 2017, the Company entered into an employment agreement with Mr. Dobler.
Management fees
200
Branson Corporate Services Inc. (“Branson”), a company
providing financial advisory services to the Company
The Company entered into a management services agreement with Branson dated June 24, 2016, which includes
the services of the Company’s former CFO, Amy Stephenson; Adam Szweras, a director of the Company, has a
24.5% indirect interest in Branson, through a family trust for the benefit of his minor children.
Management fees
163
75
-
During the year ended June 30, 2017, additional compensation to key management personnel of $7,972
(2016 - $425) was paid or accrued through wages and short-term benefits of $1,283 (2016 - $168), director’s
fees of $258 (2016 – $59) and share-based compensation of $6,431 (2016 - $198).
Related Party Balances
As at June 30, 2017, the following related party amounts were included in (a) accounts receivable, (b)
accounts payable and accrued liabilities, (c) prepaid expenses and deposits, (d) short term loans, (e) long
term loans, (f) note receivable:
(a) Accounts receivable
A company with common directors
(b) Accounts payable and accrued liabilities (1)
Companies controlled by directors and officers of the Company
Directors of the Company
Officers of the Company
(c) Prepaid expenses and deposits
Avarone
36 Aurora Cannabis Inc.
2017
$
72
76
-
565
-
2016
$
-
102
36
-
2
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
(d) Short-term loans
Lola Ventures Inc. (“Lola”)
1771472 Alberta Ltd. (“1771472”)
(e) Long-term loans
Lola
1771472
(f) Note receivable
Australis Holdings LLP
-
-
-
-
-
-
2,096
540
550
1,090
1,579
1,579
3,158
1,782
(1) The amounts are unsecured, non-interest bearing and have no specific repayment terms.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company’s Financial Statements in conformity with IFRS requires management to
make judgments, estimates, and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised, if the revision affects only that period,
or in the period of the revision and future periods, if the revision affects both current and future periods.
Significant judgments, estimates and assumptions that have the most significant effect on the amounts
recognized in the Financial Statements are described below.
Fair value measurements of financial instruments
The individual fair values attributed to the different components of a financing transaction, notably
investment in equity in securities, derivative financial instruments, convertible debt and loans, are
determined using valuation techniques. The Company uses judgment to select the methods used to make
certain assumptions and in performing the fair value calculations in order to determine (a) the values
attributed to each component of a transaction at the time of their issuance; (b) the fair value measurements
for certain instruments that require subsequent measurement at fair value on a recurring basis; and (c) for
disclosing the fair value of financial instruments subsequently carried at amortized cost. These valuation
estimates could be significantly different because of the use of judgment and the inherent uncertainty in
estimating the fair value of these instruments that are not quoted in an active market. The assumptions
regarding the derivative liabilities are disclosed in notes 14(d) and 15(d) to the Consolidated Financial
Statements.
Aurora Cannabis Inc. 37
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
Biological assets
Biological assets, consisting of cannabis plants and agricultural produce consisting of cannabis, are
measured at fair value less costs to sell up to the point of harvest.
Determination of the fair values of the biological assets and the agricultural product requires the Company
to make assumptions about how market participants assign fair values to these assets. These assumptions
primarily relate to the level of effort required to bring the cannabis up to the point of harvest, costs to convert
the harvested cannabis to finished goods, sales price, risk of loss, expected future yields from the cannabis
plants and estimating values during the growth cycle.
The valuation of biological assets at the point of harvest is the cost basis for all cannabis based inventory
and thus any critical estimates and judgments related to the valuation of biological assets are also applicable
for inventory. The valuation of work-in-process and finished goods also requires the estimate of conversion
costs incurred, which become part of the carrying amount for the inventory. The Company must also
determine if the cost of any inventory exceeds its net realizable value, such as cases where prices have
decreased, or inventory has spoiled or has otherwise been damaged.
Estimated useful lives and depreciation of property, plant and equipment
Depreciation of property, plant and equipment is dependent upon estimates of useful lives which are
determined through the exercise of judgment. The assessment of any impairment of these assets is dependent
upon estimates of recoverable amounts that take into account factors such as economic and market
conditions and the useful lives of assets.
Business combinations
In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded
at their fair values. One of the most significant estimates relates to the determination of the fair value of
these assets and liabilities. For any intangible asset identified, depending on the type of intangible asset and
the complexity of determining its fair value, an independent valuation expert or management may develop
the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total
expected future net cash flows. The evaluations are linked closely to the assumptions made by management
regarding the future performance of the assets concerned and any changes in the discount rate applied. All
acquisitions have been accounted for using the acquisition method.
Certain fair values may be estimated at the acquisition date pending confirmation or completion of the
valuation process. Where provisional values are used in accounting for a business combination, they may
be adjusted retrospectively in subsequent periods. However, the measurement period will last for one year
from the acquisition date.
Goodwill impairment
The Company performs an annual test for goodwill impairment in the fourth quarter for each of the cash
generating units (CGUs), and whenever events or circumstances make it more likely than not that an
impairment may have occurred, such as a significant adverse change in the business climate or a decision
38 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
to sell or dispose all or a portion of a reporting unit. Determining whether an impairment has occurred
requires valuation of the respective CGU, which we estimate using a discounted cash flow method. When
available and as appropriate, we use comparative market multiples to corroborate discounted cash flow
results. In applying this methodology, we rely on a number of factors, including actual operating results,
future business plans, economic projections and market data.
The Company tests intangible assets with indefinite lives annually for impairment using a fair value method
such as discounted cash flows.
Convertible instruments
Convertible notes are compound financial instruments which are accounted for separately by their
components: a financial liability and an equity instrument. The financial liability, which represents the
obligation to pay coupon interest on the convertible notes in the future, is initially measured at its fair value
and subsequently measured at amortized cost. The residual amount is accounted for as an equity instrument
at issuance.
The identification of convertible notes components is based on interpretations of the substance of the
contractual arrangement and therefore requires judgment from management. The separation of the
components affects the initial recognition of the convertible debenture at issuance and the subsequent
recognition of interest on the liability component. The determination of the fair value of the liability is also
based on a number of assumptions, including contractual future cash flows, discount rates and the presence
of any derivative financial instruments.
Share-based payments
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and
warrants. In estimating fair value, management is required to make certain assumptions and estimates such
as the expected life of options, volatility of the Company’s future share price, risk free rate, future dividend
yields and estimated forfeitures at the initial grant date. Changes in assumptions used to estimate fair value
could result in materially different results.
Deferred tax assets
Deferred tax assets, including those arising from tax loss carry-forwards, require management to assess the
likelihood that the Company will generate sufficient taxable earnings in future periods in order to utilize
recognized deferred tax assets. Assumptions about the generation of future taxable profits depend on
management’s estimates of future cash flows. In addition, future changes in tax laws could limit the ability
of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable
income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets
recorded at the reporting date could be impacted.
Aurora Cannabis Inc. 39
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
NEW ACCOUNTING PRONOUNCEMENTS
There were no new standards effective July 1, 2016 that had an impact on the Company’s Financial
Statements. The following IFRS standards have been recently issued by the IASB. Pronouncements that are
not applicable or where it has been determined do not have a significant impact to the Company have been
excluded herein.
IFRS 7 Financial instruments: Disclosure
IFRS 7 Financial instruments: Disclosure, was amended to require additional disclosures on transition from
IAS 39 to IFRS 9. IFRS 7 is effective on adoption of IFRS 9, which is effective for annual periods
commencing on or after January 1, 2018.
IFRS 9 Financial instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases
of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and
Measurement and all previous versions of IFRS 9. The standard introduces new requirements for
classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods
beginning on or after 1 January 2018, with early application permitted.
IFRS 15 Revenue from contracts with Customers
The IASB replaced IAS 18, Revenue, in its entirety with IFRS 15, Revenue from contracts with Customers.
The standard contains a single model that applies to contracts with customers and two approaches to
recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis
of transactions to determine whether, how much and when revenue is recognized. New estimates and
judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue
recognized. IFRS 15 is effective for annual periods beginning on January 1, 2017, with early application
permitted.
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16 Leases, which will replace IAS 17 Leases. This standard
introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all
leases with a term of more than twelve months, unless the underlying asset is of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments. The standard will be effective for annual periods
beginning on or after January 1, 2019, with earlier application permitted for entities that apply IFRS 15
Revenue from Contracts with Customers at or before the date of initial adoption of IFRS 16. The extent of
the impact of adoption of the standard has not yet been determined.
40 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
(a) Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable,
promissory notes receivable, accounts payable and accrued liabilities. The carrying values of these
financial instruments approximate their fair values as at June 30, 2017.
IFRS requires disclosures about the inputs to fair value measurements, including their classification
within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of hierarchy
are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either
directly or indirectly; and
Level 3 – Inputs for the asset or liability that are not based on observable market data.
There have been no transfers between fair value levels during the period.
The following table summarizes the Company’s financial instruments as at June 30, 2017:
Available-for-sale
financial assets
$
Loans and
receivables
$
Financial
assets at
FVPTL
$
Other
financial
liabilities
$
-
-
14,845
-
-
-
-
-
-
-
-
-
159,796
2,312
-
1,222
2,096
-
-
-
-
-
-
-
-
-
-
-
-
11,071
292
-
-
-
-
-
-
-
-
-
-
-
-
8,753
1,421
351
63,536
Total
$
159,796
2,312
14,845
1,222
2,096
11,071
292
8,753
1,421
351
63,536
Financial Assets
Cash and cash equivalents
Accounts receivable
Marketable securities
Promissory notes
receivable
Loans receivable
Convertible debenture
Derivative
Financial Liabilities
Accounts payable
Deferred revenue
Finance lease
Convertible notes (1)
(1) The fair value of convertible notes includes both the debt and equity components.
Aurora Cannabis Inc. 41
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
The following is a summary of financial assets measured at fair value segregated based on the various
levels of inputs:
Marketable securities
Convertible debenture
Warrant derivative
Level 1
$
14,845
-
-
Level 2
$
-
-
-
Level 3
$
-
11,071
292
Total
$
14,845
11,071
292
Changes in level 3 financial assets for the year were as follows:
Opening balance
Additions
Unrealized gains at inception deferred
Unrealized losses
Ending balance
Warrant
derivative
$
-
306
380
(394)
292
Convertible
Debenture
$
-
2,000
12,564
(3,493)
11,071
Changes in deferred gains on convertible debenture and derivative measured at fair value and included
in level 3 of the fair value hierarchy were as follows:
Opening balance
Unrealized gains at inception deferred
Unrealized gains amortized
Ending balance
Warrant
derivative
$
-
380
(59)
321
Convertible
Debenture
$
-
12,564
(2,358)
10,206
Changes in derivative liabilities measured at fair value and included in level 3 of the fair value hierarchy
were as follows:
Opening balance
Initial recognition
Reclassification upon repayment of loans
Gain / loss on re-measurement to fair value at period end
Ending balance
2017
$
233
(233)
-
-
2016
$
-
323
-
(90)
233
The Company’s liability for the CanvasRx contingent consideration was measured at fair value based
on unobservable inputs, and was considered a level 3 financial instrument. The fair value of the liability
42 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
determined by this analysis was primarily driven by the Company’s expectations of CanvasRx
achieving the milestones. The expected milestones were assessed probabilities by management which
was then discounted to present value in order to derive a fair value of the contingent consideration. The
primary inputs of the calculation were the probabilities of achieving the milestones and a discount rate.
(b) Financial Instruments Risk
The Company is exposed in varying degrees to a variety of financial instrument related to risks. The
Board mitigates these risks by assessing, monitoring and approving the Company’s risk management
processes:
(i) Credit Risk
Credit risk is the risk of a potential loss to the Company if a customer or third party to a financial
instrument fails to meet its contractual obligations. The Company is moderately exposed to credit
risk from its cash and cash equivalents, trade and other receivables, convertible debenture asset,
and promissory notes receivable. The risk exposure is limited to their carrying amounts at the
statement of financial position date. The risk is for cash and cash equivalents is mitigated by
holding these instruments with highly rated Canadian financial institutions. The Company does
not invest in asset-backed deposits or investments and does not expect any credit losses. The
Company periodically assesses the quality of its investments and is satisfied with the credit rating
of the financial institutions and the investment grade of its guaranteed investment certificates.
Trade and other receivables primarily consist of trade accounts receivable and goods and services
taxes recoverable (“GST”). Credit risk from the convertible debenture asset and promissory notes
receivable arises from the possibility that principal and/or interest due may become uncollectible.
The Company mitigates this risk by managing and monitoring the underlying business
relationships.
The Company provides credit to its customers in the normal course of business and has established
credit evaluation and monitoring processes to mitigate credit risk, but has limited risk as the
majority of sales are transacted with credit cards.
As at June 30, 2017, the Company’s aging of receivables was approximately as follows:
0 – 60 days
61 – 120 days
2017
$
1,534
778
2,312
2016
$
-
87
87
Aurora Cannabis Inc. 43
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
(ii) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations
associated with financial liabilities. The Company manages liquidity risk through the management
of its capital structure. The Company’s approach to managing liquidity is to ensure that it will
have sufficient liquidity to settle obligations and liabilities when due.
In addition to the commitments outlined in Note 22 to the Company’s Financial Statements, the
Company has the following contractual obligations:
Total
$
8,753
1,421
452
79,470
90,096
<1 year
$
1 - 3 years
$
3 -5 years
$
8,753
1,421
107
-
10,281
-
-
345
79,470
79,815
-
-
-
-
-
Accounts payable and accrued
liabilities
Deferred revenues
Finance lease
Convertible notes
(iii) Market risk
a) Currency risk
The operating results and financial position of the Company are reported in Canadian dollars.
As the Company operates in an international environment, some of the Company’s financial
instruments and transactions are denominated in currencies other than the Canadian dollar.
The results of the Company’s operations are subject to currency transaction and translation
risks.
The Company holds cash in Canadian dollars and Euros, and investments in Australian
dollars. The Company’s main risk is associated with fluctuations in Euros and Australian
dollars and assets and liabilities are translated based on the foreign currency translation policy
described in Note 2 of the Financial Statements.
The Company has determined that an effect of a 10% increase or decrease in the Australian
dollar and Euro against the Canadian dollar on financial assets and liabilities, as at June 30,
2017, including cash, marketable securities and accounts payable and accrued liabilities
denominated in Euros and Australian dollars, would result in an increase or decrease of
approximately $1,430 (2016 - $Nil) to the net loss and comprehensive loss for the year ended
June 30, 2017.
At June 30, 2017, the Company had no hedging agreements in place with respect to foreign
exchange rates. The Company has not entered into any agreements or purchased any
instruments to hedge possible currency risks at this time.
44 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
b) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market interest rates. Cash and cash equivalents bear
interest at market rates. The Company’s short-term loan and convertible loans are either non-
interest bearing or have fixed rates of interest and expose the Company to a limited interest
rate risk.
c) Price risk
Price risk is the risk of variability in fair value due to movements in equity or market prices.
The Company’s marketable securities and investments are susceptible to price risk arising
from uncertainties about their future values. The fair value of marketable securities is based
on quoted market prices which the shares of the investments can be exchanged for.
If the fair value of these financial assets were to increase or decrease by 10%, the Company
would incur an associated increase or decrease in net loss and comprehensive loss of
approximately $2,823 (2016 - $Nil). See Note 4 of the Financial Statements for additional
details regarding the fair value of investments and marketable securities.
SUMMARY OF OUTSTANDING SHARE DATA
As of the date of this MD&A, the Company had the following securities issued and outstanding:
Securities (1)
Issued and outstanding shares
Options
Warrants
Compensation warrants
Convertible debentures
September 25, 2017
#
371,569,751
15,586,150
21,779,000
1,865,249
25,010,760
(1) See the Company’s Financial Statements for a detailed description of these securities.
OUTLOOK
To achieve the Company’s vision and short-term goals, Aurora is expediting the completion of Aurora Sky,
its major facility expansion at the Edmonton International Airport and of its facility in Pointe-Claire,
Québec. The Company is currently executing an aggressive Canadian and international expansion, as
evidenced by the April 2017 acquisition of Peloton in Québec, May 2017 acquisition of Pedanios in
Germany, and lead participation in the May 2017 Cann Group IPO in Australia. The Company is also
actively pursuing further domestic and international opportunities. Aurora is continuing to accelerate its
penetration of the Canadian medical cannabis market and leverage its Health Canada sales license for
derivative products. If, as expected, the Canadian federal government passes legislation legalizing the adult
consumer use of cannabis, the Company is building organizational and production capacity to capture a
share of the adult use market. Most recently, Aurora strengthened its senior management team with the
Aurora Cannabis Inc. 45
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
appointment of a new CFO and COO as well as four Vice Presidents in finance, production, market
development and human resources.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
In accordance with National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim
Filings, management is responsible for establishing and maintaining adequate Disclosure Controls and
Procedures (“DCP”) and Internal Control Over Financial Reporting (“ICFR”). On July 24, 2017, the
Company commenced trading on the TSX, graduating from the TSX Venture Exchange. The Company’s
CEO and CFO will be required to file certifications relating to DCP and ICFR for the Company in
connection with
the six months ended
December 31, 2017, the second reporting period after the Company became a non-venture issuer on the
TSX.
filings, commencing with
interim and annual
its
FORWARD-LOOKING STATEMENTS
This MD&A may contain “forward-looking information” within the meaning of Canadian securities
legislation (“forward-looking statements”). These forward-looking statements are made as of the date of
this MD&A and Company does not intend, and does not assume any obligation, to update these forward-
looking statements, except as required under applicable securities legislation. Forward-looking statements
relate to future events or future performance and reflect Company management’s expectations or beliefs
regarding future events. In certain cases, forward-looking statements can be identified by the use of words
such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”,
“forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and
phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be
taken”, “occur” or “be achieved” or the negative of these terms or comparable terminology. In this
document, certain forward-looking statements are identified by words including “may”, “future”,
“expected”, “intends” and “estimates”. By their very nature forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. The Company provides no assurance
that forward-looking statements will prove to be accurate, as actual results and future events could differ
materially from those anticipated in such statements. Accordingly, readers should not place undue reliance
on forward-looking statements.
Certain forward-looking statements in this MD&A include, but are not limited to the following:
•
the construction of Aurora Sky, its associated costs, and receipt of licenses from Health Canada to
produce and sell medical cannabis from this facility;
•
the completion of construction of its facility in Quebec and receipt of Health Canada licenses;
•
investments and capital expenditures;
•
its expectations regarding production capacity and production yields; and
• product sales expectation and corresponding forecasted increase in revenues.
46 Aurora Cannabis Inc.
AURORA CANNABIS INC.
Management’s Discussion & Analysis
For the Three and Twelve Month Periods Ended June 30, 2017
(In thousands of Canadian dollars, except share and per share amounts, and where otherwise noted)
The above and other aspects of the Company’s anticipated future operations are forward-looking in nature
and, as a result, are subject to certain risks and uncertainties. Although the Company believes that the
expectations reflected in these forward-looking statements are reasonable, undue reliance should not be
placed on them as actual results may differ materially from the forward-looking statements. Such forward-
looking statements are estimates reflecting the Company's best judgment based upon current information
and involve a number of risks and uncertainties, and there can be no assurance that other factors will not
affect the accuracy of such forward-looking statements. Such factors include but are not limited to the
Company’s ability to obtain the necessary financing and the general impact of financial market conditions,
the yield from marijuana growing operations, product demand, changes in prices of required commodities,
competition, government regulations and other risks as set out under “Risk Factors” in the Company’s
Annual Information Form dated September 25, 2017 filed on SEDAR.
Aurora Cannabis Inc. 47
BOARD OF
DIRECTORS
Terry Booth
Dr. Jason Dyck
Steve Dobler
Barry Fishman
Joseph del Moral
Michael Singer
Adam Szweras
Capital Summary
TSX-V listed, ticker symbol
Securities
Issued & Outstanding Shares
Warrants
Options
Compensation options
Convertible debentures shares reserved for issuance
Fully Diluted
September 6, 2016
ACB
371,569,751
15,586,150
21,779,000
1,865,249
25,010,760
435,810,910
CONTACT
Cam Battley
Executive Vice President
Marc Lakmaaker
NATIONAL Equicom
+1 (905) 864 5525
+1 (416) 848 1397
cam@auroramj.com
mlakmaaker@national.ca
AURORA CANNABIS INC.
Consolidated Financial Statements
For the years ended June 30, 2017 and 2016
(In Canadian Dollars)
Management's Responsibility
To the Shareholders of Aurora Cannabis Inc.:
Management is responsible for the preparation and presentation of the accompanying consolidated financial
statements, including responsibility for significant accounting judgments and estimates in accordance with
International Financial Reporting Standards and ensuring that all information in the annual report is consistent
with the statements. This responsibility includes selecting appropriate accounting principles and methods, and
making decisions affecting the measurement of transactions in which objective judgment is required.
In discharging its responsibilities for the integrity and fairness of the consolidated financial statements,
management designs and maintains the necessary accounting systems and related internal controls to provide
reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly
maintained to provide reliable information for the preparation of consolidated financial statements.
The Board of Directors and Audit Committee are composed primarily of Directors who are neither
management nor employees of the Company. The Board is responsible for overseeing management in the
performance of its financial reporting responsibilities, and for approving the financial information included in
the annual report. The Board fulfils these responsibilities by reviewing the financial information prepared by
management and discussing relevant matters with management and external auditors. The Committee is also
responsible for recommending the appointment of the Company's external auditors.
MNP LLP, an independent firm of Chartered Professional Accountants, is appointed by the shareholders to
audit the consolidated financial statements and report directly to them; their report follows. The external
auditors have full and free access to, and meet periodically and separately with, both the Committee and
management to discuss their audit findings.
September 25, 2017
“Terry Booth”
Terry Booth
Chief Executive Officer
“Glen Ibbott”
Glen Ibbott
Chief Financial Officer
Independent Auditors’ Report
To the Shareholders of Aurora Cannabis Inc.:
We have audited the accompanying consolidated financial statements of Aurora Cannabis Inc., which comprise the
consolidated statement of financial position as at June 30, 2017 and June 30, 2016, and the consolidated statements of loss
and other comprehensive loss, changes in equity and cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Aurora
Cannabis Inc. as at June 30, 2017, June 30, 2016 and its financial performance and its cash flows for the years then ended
in accordance with International Financial Reporting Standards.
Vancouver, British Columbia
September 25, 2017
Chartered Professional Accountants
AURORA CANNABIS INC.
Consolidated Statements of Financial Position
June 30, 2017 and 2016
(In thousands of Canadian dollars)
Assets
Current
Cash and cash equivalents
Restricted cash
Accounts receivable
Marketable securities
Inventory
Biological assets
Promissory notes receivable
Loans receivable
Other current assets
Property, plant and equipment
Convertible debenture
Loans receivable
Derivative
Investment in a joint venture
Intangible assets
Goodwill
Notes
3
4(b)
5
6
7
10
8
9
4(a)
10
4(b)
10
12
12
Liabilities
Current
Accounts payable and accrued liabilities
Deferred revenue
Finance lease
Short term loans
Derivative liabilities
Contingent consideration payable
Finance lease
Convertible notes
Long term loans
Deferred gain on convertible debenture
Deferred gain on derivative
Deferred tax liability
Shareholders’ equity
Share capital
Reserves
Deficit
21(c), 24(b)(ii)
13
14
14(d), 15(d)
11(a)
13
15
14(b), 14(e)
4(a)
4(b)
20
16
2017
$
159,796
-
2,312
14,845
7,703
4,088
1,222
2,096
1,544
193,606
45,523
11,071
-
292
-
31,087
41,100
322,679
8,753
1,421
69
-
-
13,221
23,464
282
63,536
-
10,206
321
5,937
103,746
221,447
25,912
(28,426)
218,933
322,679
2016
$
170
89
87
-
2,317
1,845
-
-
736
5,244
11,370
-
1,782
-
-
-
-
18,396
1,686
28
-
6,047
233
-
7,994
-
1,281
3,159
-
-
-
12,434
17,148
5,730
(16,916)
5,962
18,396
Nature of Operations (Note 1)
Commitments and Contingencies (Note 22)
Subsequent Events (Notes 4(a), 7(b), 15(b) and 26)
The accompanying notes are an integral part of these Consolidated Financial Statements.
AURORA CANNABIS INC.
Consolidated Statements of Comprehensive Loss
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
Revenue
Unrealized gain on changes in fair value of
biological assets
Inventory expensed to cost of sales
Production costs
Cost of sales (recovery)
Gross profit
Expenses
General and administration
Sales and marketing
Research and development
Acquisition and project evaluation costs
Depreciation
Share-based payments
Notes
17, 21(a)
18
9
16(d)(e)
2017
$
18,067
(7,469)
3,472
6,008
2,011
16,056
6,813
10,270
314
1,551
716
7,584
27,248
2016
$
1,439
(3,004)
295
1,946
(763)
2,202
3,015
1,706
565
-
593
913
6,792
Loss from operations
(11,192)
(4,590)
Other income (expenses)
Interest and other income
Finance and other costs
Foreign exchange
Unrealized loss on debenture
Unrealized gain on marketable securities
Unrealized gain (loss) on derivative
Loss before income taxes
Income tax recovery
Current
Deferred, net
Net loss
Other comprehensive income (loss)
Deferred tax
Unrealized gain on marketable securities
Foreign currency translation
Comprehensive loss
Net loss per share
Basic and diluted
19
4(a)
4(b)
4(b)
4(b)
861
(6,582)
(215)
(1,135)
1,334
(335)
(6,072)
(17,264)
19
4,277
4,296
73
(1,444)
-
-
-
89
(1,282)
(5,872)
79
70
149
(12,968)
(5,723)
(885)
6,077
(25)
(7,801)
-
-
-
(5,723)
(0.05)
(0.04)
Weighted average number of shares outstanding
Basic and diluted
279,029,226
128,988,266
The accompanying notes are an integral part of these Consolidated Financial Statements.
AURORA CANNABIS INC.
Consolidated Statements of Changes in Equity
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share amounts)
Share Capital
Reserves
Balance, June 30, 2015
Comprehensive loss for the period
Conversion of notes
Equity component of convertible loans
Deferred tax on convertible notes
Compensation options on convertible notes
Private placement
Share issue costs
Exercise of stock options
Exercise of warrants
Forfeited options
Shares issued for compensation
Shares issued for convertible notes
Convertible notes settled in cash
Fair value adjustment on loans
Share-based payments
Balance, June 30, 2016
Comprehensive loss for the period
Shares issued for acquisitions
Shares issued for contingent consideration
Performance shares
Transfer from derivative liabilities
Private placements
Share issue costs
Deferred tax on share issue costs
Warrants issued on amendment of
convertible notes
Conversion of notes
Equity component of convertible notes
Equity component of convertible note
transaction costs
Deferred tax on convertible notes
Shares issued for loan
Reclassification upon repayment of related
party loans
Shares issued for compensation
Exercise of warrants
Exercise of compensation option/warrants
Forfeited options & warrants
Exercise of stock options
Share-based payments
Notes
16(b)(x)
16(b)(xiv)
16(b)(xi)
16(b)(xii)
16(b)(v)
15(d)
14(b)(e)
11
11(a)
16(b)(viii)
16(b)(iv)(vii)
16(b)(iv)(vii)
15(d)
16(b)(x)
14(d)
14(b)(e)
16(b)(v)
16(b)(xii)
16(b)(xiii)
16(b)(xi)
Common
Shares
#
118,794,138
-
3,928,000
-
-
-
9,091,670
-
2,975,829
564,000
-
22,728
200,000
-
-
-
135,576,365
-
27,091,007
2,926,103
20,000,000
-
90,837,500
-
-
-
29,020,319
-
-
-
50,000
-
25,510
54,936,306
4,084,434
-
2,001,700
-
Amount
$
11,433
-
452
-
-
-
4,819
(246)
515
56
-
13
106
-
-
-
17,148
-
34,540
7,408
2,322
-
98,009
(10,913)
1,846
-
38,037
-
-
-
24
-
13
28,648
2,966
-
1,399
-
Balance, June 30, 2017
366,549,244
221,447
The accompanying notes are an integral part of these Consolidated Financial Statements.
Obligation
to Issue
Shares
$
Stock
Options
$
Compensation
Options/
Warrants
$
Related
Party
Loans
$
Fair Value
and
Deferred
Tax
Foreign
Currency
Translation
Convertible
Notes
2,322
-
-
-
-
-
-
-
-
-
-
13
-
-
-
-
2,335
-
-
-
(2,322)
-
-
-
-
-
-
-
-
-
-
-
(13)
-
-
-
-
-
-
381
-
-
-
-
-
-
-
(354)
-
(105)
-
-
-
-
686
608
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(23)
(578)
7,584
7,591
823
-
-
-
-
90
-
44
-
-
-
-
-
-
-
226
1,184
-
-
-
-
98
-
4,631
-
877
-
-
-
-
-
-
-
(2,046)
(1,292)
(32)
-
-
3,420
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,403
-
1,403
-
-
-
-
-
-
-
-
$
216
-
(171)
270
(70)
-
-
-
-
-
-
-
-
(45)
-
-
200
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(4,800)
20,587
(900)
(5,353)
-
(1,403)
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,192
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(25)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
Reserves
$
3,742
-
(171)
270
(70)
90
-
44
(354)
-
(105)
13
-
(45)
1,403
912
5,730
5,167
-
-
(2,322)
98
-
4,631
-
877
(4,800)
20,587
(900)
(5,353)
-
(1,403)
(13)
(2,046)
(1,292)
(55)
(578)
7,584
Deficit
$
(11,342)
(5,724)
-
-
-
-
-
-
-
-
105
-
-
45
-
-
(16,916)
(12,968)
-
-
-
-
-
-
-
-
-
-
-
-
-
1,403
-
-
-
55
-
-
Total
$
3,833
(5,724)
281
270
(70)
90
4,819
(201)
161
56
-
26
106
-
1,403
912
5,962
(7,801)
34,540
7,408
-
98
98,009
(6,282)
1,846
877
33,237
20,587
(900)
(5,353)
24
-
-
26,602
1,674
-
821
7,584
-
9,734
5,192
(25)
25,912
(28,426)
218,933
Notes
11
11
AURORA CANNABIS INC.
Consolidated Statements of Cash Flows
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars)
Cash provided by (used in)
Operating activities
Net loss for the year
Adjustments for non-cash items
Change in fair value of biological assets
Depreciation
Share-based payments
Unrealized loss on debenture
Unrealized gain on marketable securities
Unrealized (gain) loss on derivatives
Non-cash fees and compensation
Accrued interest
Financing fees
Accretion expense
Interest and other income
Deferred tax recovery
Changes in non-cash working capital
GST recoverable
Accounts receivable
Inventory
Other current assets
Accounts payable and accrued liabilities
Deferred revenue
Investing activities
Marketable securities and derivative
Convertible debenture
Promissory notes receivable
Purchase of property, plant and equipment
Acquisition of businesses, net of cash acquired
Acquisition of assets, net of cash acquired
Financing activities
Finance lease
Proceeds of convertible notes
Proceeds (repayment) of short term loans
Proceeds (repayment) of long term loans
Financing fees
Shares issued for cash, net of share issue costs
Effect of foreign exchange on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash and cash equivalents consist of:
Cash and cash equivalents
Restricted cash
Supplementary information:
Property, plant and equipment in accounts payable
Depreciation in production costs
The accompanying notes are an integral part of these Consolidated Financial Statements.
2017
$
(12,968)
(5,864)
1,087
7,584
1,135
(1,334)
335
-
(78)
1,657
3,537
(78)
(4,277)
(963)
(654)
(1,679)
(1,009)
2,610
453
(10,506)
(7,877)
(2,000)
(1,215)
(25,718)
(6,917)
(6,748)
(50,475)
(193)
115,000
(6,215)
(4,000)
(5,087)
120,823
220,328
190
159,537
259
159,796
159,796
-
159,796
4,119
373
2016
$
(5,724)
(3,004)
593
913
-
-
(89)
13
68
192
622
-
(70)
623
(81)
(1,133)
(645)
922
28
(6,772)
-
-
-
(1,885)
-
-
(1,885)
-
800
2,298
982
(316)
4,835
8,600
-
(57)
316
259
170
89
259
264
136
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
1. Nature of Operations
Aurora Cannabis Inc. (the “Company” or “Aurora”), was incorporated under the Business Corporations Act (British
Columbia). The Company’s shares are listed on the Toronto Stock Exchange (the “Exchange”) under the symbol
“ACB” and on the OTCQX under the symbol “ACBFF”
The Company, through its wholly-owned subsidiary, Aurora Cannabis Enterprises Inc., is licensed to produce and
sell medical marijuana pursuant to the Access to Cannabis for Medical Purposes Regulations (“ACMPR”).
On December 9, 2014, the Company completed the reverse take-over of Prescient Mining Corp. (the “RTO”) by way
of a Share Exchange Agreement (the “Agreement”). Pursuant to the Agreement, the Company acquired all of the
issued and outstanding shares of Aurora Marijuana Inc. in exchange for securities of the Company.
The head office and principal address of the Company is Suite 1500 - 1199 West Hastings Street, Vancouver, BC,
Canada, V6E 3T5. The Company’s registered and records office address is Suite 1500 - 1055 West Georgia Street,
Vancouver, BC V6E 4N7.
2. Significant Accounting Policies
(a) Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and
interpretations of the IFRS Interpretations Committee (“IFRIC”) in effect for the year ended June 30, 2017.
These consolidated financial statements were approved and authorized for issue by the Board of Directors of the
Company on September 25, 2017.
(b) Basis of consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries,
Aurora Marijuana Inc. (“AMI”), Aurora Cannabis Enterprises Inc. (“ACE”), 1769474 Alberta Ltd. (“1769474”),
Australis Capital Inc. (“ACI”), CanvasRx Inc. (“CanvasRx”), 10094595 Canada Inc., Peloton Pharmaceuticals
Inc. (“Peloton”) and Pedanios GmbH (“Pedanios”). All significant intercompany balances and transactions were
eliminated on consolidation.
(c) Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis except for certain financial
instruments, biological assets, derivatives and acquisition related contingent consideration which were measured
at fair value.
(d) Functional and presentation of foreign currency
The consolidated financial statements are presented in Canadian dollars unless otherwise noted. The functional
currency of Pedanios is the European Euro and the functional currency of Aurora and its remaining subsidiaries
is the Canadian dollar.
1
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2. Significant Accounting Policies (Continued)
(e) Foreign currency translation
Foreign currency transactions are translated into Canadian dollars at exchange rates in effect on the date of the
transactions. Monetary assets and liabilities denominated in foreign currencies at the consolidated statement of
financial position date are translated to Canadian dollars at the foreign exchange rate applicable at that date.
Realized and unrealized exchange gains and losses are recognized in the consolidated statements of
comprehensive loss.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction.
The assets and liabilities of foreign operations are translated into Canadian dollars at period end exchange rates.
Income and expenses, and cash flows of foreign operations are translated into Canadian dollars using average
exchange rates. Exchange differences resulting from the translation of foreign operations are recognized in other
comprehensive income and accumulated in equity.
(f) Cash and cash equivalents
Cash and cash equivalents include cash deposits in financial institutions and other deposits that are readily
convertible into cash.
(g) Biological assets
The Company measures biological assets consisting of medical cannabis plants at fair value less cost to sell up
to the point of harvest, which becomes the basis for the cost of finished goods inventories after harvest. Seeds
are measured at fair market value.
Unrealized gains or losses arising from the changes in fair value less cost to sell during the year are included in
the results of operations for the related year.
(h) Inventory
Inventories of harvested finished goods and packing materials are initially valued at cost and subsequently at the
lower of cost and net realizable value. Inventories of harvested cannabis are transferred from biological assets at
their fair value less costs to sell at harvest which becomes the deemed cost. Any subsequent post-harvest costs
are capitalized to inventory to the extent that the cost is less than net realizable value. Net realizable value is
determined as the estimated selling price in the ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale. Cost is determined using the average cost basis. Products for
resale and supplies and consumables are valued at cost.
The Company reviews inventory for obsolete, redundant and slow moving goods and any such inventory are
written-down to net realizable value.
2
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2.
Significant Accounting Policies (Continued)
(i) Property, plant and equipment
Property, plant and equipment is measured at cost less accumulated depreciation and impairment losses.
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets, except in the year
of acquisition, when half of the rate is used as follows:
Computer software and equipment
Production equipment
Furniture and fixtures
Building and improvements
3 years
2 - 4 years
5 years
10 - 50 years
An asset’s residual value, useful life and depreciation method are reviewed at each financial year-end and
adjusted if appropriate.
Gains and losses on disposal of an item are determined by comparing the proceeds from disposal with the carrying
amount of the item and are recognized in profit or loss.
The Company capitalizes borrowing costs on capital invested in projects under construction (Note 9). Upon
commencement of commercial operations, capitalized borrowing costs, as a portion of the total cost of the asset,
are depreciated over the estimated useful life of the related asset.
(j) Intangible assets
Intangible assets are recorded at cost less accumulated amortization and impairment losses, if any. Intangible
assets acquired in a business combination are measured at fair value at the acquisition date. Amortization is
provided on a straight-line basis over their estimated useful lives, which do not exceed the contractual period, if
any. Intangible assets that have indefinite useful lives are not subject to amortization and are tested annually for
impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. The
estimated useful lives, residual values, and amortization methods are reviewed at each year end, and any changes
in estimates are accounted for prospectively.
Customer relationships are measured at fair value at the time of acquisition and are amortized on a straight-line
basis over a period of 7 years.
The Health Canada License is measured at fair value at the time of acquisition and is amortized on a straight-line
basis over the useful life of the facility or lease term.
The Pedanios licenses and permits are classified as indefinite life intangible assets and are not amortized but are
tested for impairment on an annual basis. These licenses and permits do not expire, as such, there is no foreseeable
limit to the period over which these assets are expected to generate future cash inflows to the Company.
(k) Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of
the net tangible and intangible assets acquired. Goodwill is allocated to the cash generating unit (“CGU”) or
CGUs which are expected to benefit from the synergies of the combination. The Company has determined that
the goodwill associated with all acquisitions belong to the medical cannabis segment.
3
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2.
Significant Accounting Policies (Continued)
(k) Goodwill (Continued)
Goodwill that has an indefinite useful life are not subject to amortization and are tested annually for impairment,
or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are
tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable.
Impairment is determined for goodwill by assessing if the carrying value of a CGU, including the allocated
goodwill, exceeds its recoverable amount determined as the greater of the estimated fair value less costs to sell
and the value in use. Impairment losses recognized in respect of a CGU are first allocated to the carrying value
of goodwill and any excess is allocated to the carrying amount of assets in the CGU. Any goodwill impairment
is recorded in income in the period in which the impairment is identified. Impairment losses on goodwill are not
subsequently reversed.
(l) Investment in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights
to the net assets of the arrangement. Investments in a joint venture are accounted for using the equity method and
are initially recognized at cost. The entire carrying amount of the investment is tested for impairment annually.
(m) Leased assets
The Company leases some items of property, plant and equipment. A lease of property, plant and equipment is
classified as a capital lease if it transfers substantially all the risks and rewards incidental to ownership to the
Company. A lease of property, plant and equipment is classified as an operating lease whenever the terms of the
lease do not transfer substantially all of the risks and rewards of ownership to the lessee. Lease payments are
recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is
more representative of the time pattern in which the economic benefits are consumed.
(n) Impairment of non-financial assets
The carrying amount of the Company’s non-financial assets is reviewed at each financial reporting date to
determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized when
the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses are recognized in
profit and loss for the period.
The recoverable amount of an asset or CGU is the greater of it’s fair value less cost to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects the current market assessments of the time value of money and the risks specific to the
asset. For an asset that does not generate cash inflows largely independent of those from other assets, the
recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and
there has been a change in the estimates used to determine the recoverable amount, however, not to an amount
higher than the carrying amount that would have been determined had no impairment loss been recognized in
previous years.
Assets that have an indefinite useful life are not subject to depreciation and are tested annually for impairment.
4
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2.
Significant Accounting Policies (Continued)
(o) Share capital
Transaction costs directly attributable to the issuance of common shares are recognized as a deduction from
equity. The proceeds from the exercise of stock options or warrants together with amounts previously recorded
in reserves over the vesting periods are recorded as share capital. Share capital issued for non-monetary
consideration is recorded at an amount based on fair market value of the shares on the date of issue.
(p) Share-based payments
The Company has an employee stock option plan. Equity-settled share-based payments to employees are
measured at the fair value of the stock options at the grant date and recognized in expense over the vesting periods.
Share-based payments to non-employees are measured at the fair value of goods or services received or the fair
value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably
measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded
to the share-based payment reserve.
The fair value of options is determined using the Black–Scholes option pricing model which incorporates all
market vesting conditions. The number of options expected to vest is reviewed and adjusted at the end of each
reporting period such that the amount recognized for services received as consideration for the equity instruments
granted shall be based on the number of equity instruments that eventually vest. Amounts recorded for forfeited
or expired unexercised options are transferred to deficit in the year of forfeiture or expiry.
Upon the exercise of stock options, consideration received on the exercise of these equity instruments is recorded
as share capital and the related share-based payment reserve is transferred to share capital.
(q) Loss per share
The Company calculates basic loss per share using the weighted average number of common shares outstanding
during the year. Diluted loss per share is the same as basic loss per share, as the issuance of shares on the exercise
of stock options and share purchase warrants is anti-dilutive.
(r) Revenue recognition
Revenue is recognized at the fair value consideration received or receivable. Revenue from the sale of goods is
recognized when the Company has transferred the significant risks and rewards of ownership to the buyer and it
is probable that the Company will receive the previously agreed upon payment. Significant risks and rewards are
generally considered to be transferred when the Company has delivered the product to customers.
(s) Research and development
Research costs are expensed as incurred. Development expenditures are capitalized only if development costs
can be measured reliably, the product or process is technically and commercially feasible, future economic
benefits are probable and the Company intends to and has sufficient resources to complete the development to
use or sell the asset. To date, no development costs have been capitalized.
5
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2.
Significant Accounting Policies (Continued)
(t) Taxes
Tax expense recognized in profit or loss comprises the sum of current and deferred taxes not recognized in other
comprehensive income or directly in equity.
(i) Current tax
Current tax assets and/or liabilities comprise those claims from, or obligations to, fiscal authorities relating
to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on
taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is
based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting
period.
(ii) Deferred tax
Deferred taxes are calculated using the liability method on temporary differences between the carrying
amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are calculated, without
discounting, at tax rates that are expected to apply to their respective period of realization, provided they
are enacted or substantively enacted by the end of the reporting period. Deferred tax liabilities are always
provided for in full.
Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against
future taxable income. Deferred tax assets and liabilities are offset only when the Company has a right and
intention to offset current tax assets and liabilities from the same taxation authority.
Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in profit
or loss, except where they relate to items that are recognized in other comprehensive income or directly in
equity, in which case the related deferred tax is also recognized in other comprehensive income or equity,
respectively.
(u) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or
equity instrument to another entity. Financial assets and financial liabilities are recognized on the statements of
financial position at the time the Company becomes a party to the contractual provisions of the financial
instrument.
6
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2. Significant Accounting Policies (Continued)
(u) Financial instruments (continued)
(i)
Initial measurement of financial assets and financial liabilities
Financial assets and liabilities are recognized at fair value upon initial recognition plus any directly
attributable transaction costs when not subsequently measured at fair value through profit or loss. Initial
measurement gains on certain investments in hybrid instruments and warrants (underlying a unit offering)
of third parties (Notes 4(a) and 4(b)(i)) were deferred due to significant level 3 volatility inputs being
present in fair value estimates. The deferred gains are recognized over the underlying term of the warrant
to which the volatility estimates related as such factor would be considered by a market participant in
pricing the assets.
(ii)
Subsequent measurement
Measurement in subsequent periods is dependent on the classification of the financial instrument. The
Company classifies its financial instruments in the following categories: at fair value through profit or
loss, loans and receivables, held to maturity, available for sale, and other financial liabilities.
Financial assets
(i)
Financial assets at fair value through profit or loss (“FVTPL”)
Financial assets and liabilities at FVTPL are either ‘held for trading’ or designated at FVTPL. Derivatives
and embedded derivatives not held for hedging purposes are also classified as “held for trading”. These
financial assets are subsequently recorded at fair value and changes in fair value are recognized in profit
or loss for the period. Directly attributable transaction costs on acquisition are expensed as incurred.
The Company holds a convertible debenture (Note 4(a)) investment and has elected to classify and
measure the entire hybrid contract at FVTPL. The fair value of the hybrid instrument is represented by its
value through conversion.
(ii)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. Such assets are recognized initially at fair value and subsequently on an
amortized cost basis using the effective interest method, less any impairment losses. They are included in
current assets, except for maturities greater than 12 months after the end of the reporting period, which are
classified as non-current assets.
(iii) Available for sale
Available-for-sale financial assets are non-derivative financial assets that are designated as available for
sale or are not classified in any other financial asset categories. They are initially and subsequently
measured at fair value and the changes in fair value, other than impairment losses are recognized in other
comprehensive income (loss) and presented in the fair value reserve in shareholders’ equity. When the
financial assets are sold or an impairment write-down is required, losses accumulated in the fair value
reserve recognized in shareholders’ equity are reclassified to profit or loss.
7
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2. Significant Accounting Policies (Continued)
(u) Financial instruments (continued)
Financial assets (continued)
(iv) Available for sale (continued)
The Company invested in a unit private placement (Note 4(b)(i)) and elected to apply the residual method
in allocating the investment cost to the underlying common share and warrant components, first to the
share component at its fair value and the residual to the warrant component. The resulting unrealized gain
at inception on the share component was recognized in profit and loss and subsequent changes in fair value
are recognized in other comprehensive income.
(v) Held-to-maturity
Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or
determinable payments, and it is the Company’s intention to hold these investments to maturity. They are
initially recorded at fair value and subsequently measured at amortized cost.
The Company does not have any held-to-maturity financial assets.
(vi)
Impairment of financial assets
A financial asset not carried at FVTPL is reviewed at each reporting date to determine whether there is
any indication of impairment. A financial asset is impaired if objective evidence indicates that a loss event
has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the
estimated future cash flows of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows discounted at the
assets' original effective interest rate. Losses are recognized in profit or loss with a corresponding
reduction in the financial asset, or, in the case of amounts receivable, are reflected in an allowance account
against receivables. When a subsequent event causes the amount of impairment loss to decrease, the
decrease in impairment loss is reversed through profit or loss.
Financial liabilities
(i)
Other financial liabilities
Subsequent to initial recognition, the Company’s financial liabilities classified as other financial liabilities
are measured at amortized cost using the effective interest method. Financial liabilities at fair value are
stated at fair value with changes being recognized in profit and loss. The Company derecognizes a
financial liability when its contractual obligations are discharged, cancelled, or expired.
8
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2. Significant Accounting Policies (Continued)
(u) Financial instruments (continued)
Financial liabilities (continued)
The Company’s derivative financial liabilities are stated at fair value with changes recognized through
profit and loss.
(ii)
Compound financial instruments
The liability component of a compound financial instrument is recognized initially at the fair value of a
similar liability that does not have an equity conversion option. The equity component is recognized
initially as the difference between the fair value of the compound financial instrument as a whole and the
fair value of the liability component. Any directly attributable transaction costs are allocated to the liability
and equity components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured
at amortized cost using the effective interest method. The equity component of a compound financial
instrument is not remeasured subsequent to initial recognition.
Interest and losses and gains relating to the financial liability are recognized in profit or loss. On
conversion, the financial liability is reclassified to equity; no gain or loss is recognized on conversion.
(v) Significant accounting judgments, estimates and assumptions
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires
management to make judgments, estimates, and assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the
period of the revision and future periods, if the revision affects both current and future periods.
Significant judgments, estimates and assumptions that have the most significant effect on the amounts recognized
in the financial statements are described below.
Significant judgments
(i)
Fair value of financial instruments
The individual fair values attributed to the different components of a financing transaction, notably
investment in equity in securities, derivative financial instruments, convertible debt and loans, are
determined using valuation techniques. The Company uses judgment to select the methods used to make
certain assumptions and in performing the fair value calculations in order to determine (a) the values
attributed to each component of a transaction at the time of their issuance; (b) the fair value measurements
for certain instruments that require subsequent measurement at fair value on a recurring basis; and (c) for
disclosing the fair value of financial instruments subsequently carried at amortized cost. These valuation
estimates could be significantly different because of the use of judgment and the inherent uncertainty in
estimating the fair value of these instruments that are not quoted in an active market. The assumptions
regarding the derivative liabilities are disclosed in notes 14(d) and 15(d).
9
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2. Significant Accounting Policies (Continued)
(v) Significant accounting judgments, estimates and assumptions (continued)
Significant judgments (continued)
(ii)
Biological assets
Biological assets, consisting of cannabis plants and agricultural produce consisting of cannabis, are
measured at fair value less costs to sell up to the point of harvest.
Determination of the fair values of the biological assets and the agricultural product requires the Company
to make assumptions about how market participants assign fair values to these assets. These assumptions
primarily relate to the level of effort required to bring the cannabis up to the point of harvest, costs to
convert the harvested cannabis to finished goods, sales price, risk of loss, expected future yields from the
cannabis plants and estimating values during the growth cycle.
The valuation of biological assets at the point of harvest is the cost basis for all cannabis based inventory
and thus any critical estimates and judgments related to the valuation of biological assets are also
applicable for inventory. The valuation of work-in-process and finished goods also requires the estimate
of conversion costs incurred, which become part of the carrying amount for the inventory. The Company
must also determine if the cost of any inventory exceeds its net realizable value, such as cases where prices
have decreased, or inventory has spoiled or has otherwise been damaged.
(iii) Estimated useful lives and depreciation of property, plant and equipment
Depreciation of property, plant and equipment is dependent upon estimates of useful lives which are
determined through the exercise of judgment. The assessment of any impairment of these assets is
dependent upon estimates of recoverable amounts that take into account factors such as economic and
market conditions and the useful lives of assets.
(iv) Business combinations
In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded
at their fair values. One of the most significant estimates relates to the determination of the fair value of
these assets and liabilities. The contingent consideration is measured at its acquisition-date fair value and
included as part of the consideration transferred in a business combination. Contingent consideration that
is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is
accounted for within equity. Contingent consideration that is classified as an asset or a liability is
remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent
Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in
profit or loss. For any intangible asset identified, depending on the type of intangible asset and the
complexity of determining its fair value, an independent valuation expert or management may develop the
fair value, using appropriate valuation techniques, which are generally based on a forecast of the total
expected future net cash flows. The evaluations are linked closely to the assumptions made by
management regarding the future performance of the assets concerned and any changes in the discount
rate applied.
Certain fair values may be estimated at the acquisition date pending confirmation or completion of the
valuation process. Where provisional values are used in accounting for a business combination, they may
be adjusted retrospectively in subsequent periods. However, the measurement period will last for one year
from the acquisition date.
10
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2. Significant Accounting Policies (Continued)
(v) Significant accounting judgments, estimates and assumptions (continued)
Significant judgments (continued)
(v) Goodwill impairment
The Company performs an annual test for goodwill impairment in the fourth quarter for each of the cash
generating units (CGUs with goodwill allocated), and whenever events or circumstances make it more
likely than not that an impairment may have occurred, such as a significant adverse change in the business
climate or a decision to sell or dispose all or a portion of a reporting unit. Determining whether an
impairment has occurred requires valuation of the respective CGU, which we estimate using a discounted
cash flow method. When available and as appropriate, we use comparative market multiples to corroborate
discounted cash flow results. In applying this methodology, we rely on a number of factors, including
actual operating results, future business plans, economic projections and market data.
The Company tests intangible assets with indefinite lives annually for impairment using a fair value
method such as discounted cash flows.
(vi) Convertible instruments
Convertible notes are compound financial instruments which are accounted for separately by their
components: a financial liability and an equity instrument. The financial liability, which represents the
obligation to pay coupon interest on the convertible notes in the future, is initially measured at its fair
value and subsequently measured at amortized cost. The residual amount is accounted for as an equity
instrument at issuance.
The identification of convertible notes components is based on interpretations of the substance of the
contractual arrangement and therefore requires judgment from management. The separation of the
components affects the initial recognition of the convertible debenture at issuance and the subsequent
recognition of interest on the liability component. The determination of the fair value of the liability is
also based on a number of assumptions, including contractual future cash flows, discount rates and the
presence of any derivative financial instruments.
(vii) Share-based payments
The Company uses the Black-Scholes option pricing model to determine the fair value of stock options
and warrants. In estimating fair value, management is required to make certain assumptions and estimates
such as the expected life of options, volatility of the Company’s future share price, risk free rate, future
dividend yields and estimated forfeitures at the initial grant date. Changes in assumptions used to estimate
fair value could result in materially different results.
(viii) Deferred tax assets
Deferred tax assets, including those arising from tax loss carry-forwards, require management to assess
the likelihood that the Company will generate sufficient taxable earnings in future periods in order to
utilize recognized deferred tax assets. Assumptions about the generation of future taxable profits depend
on management’s estimates of future cash flows. In addition, future changes in tax laws could limit the
ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and
taxable income differ significantly from estimates, the ability of the Company to realize the net deferred
tax assets recorded at the reporting date could be impacted.
11
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
2. Significant Accounting Policies (Continued)
(w) Recent accounting pronouncements
There were no new standards effective July 1, 2016 that had an impact on the Company’s consolidated financial
statements. The following IFRS standards have been recently issued by the IASB. The Company is assessing the
impact of these new standards on future consolidated financial statements. Pronouncements that are not
applicable or where it has been determined do not have a significant impact to the Company have been excluded
herein.
(i)
IFRS 7 Financial instruments: Disclosure
IFRS 7 Financial instruments: Disclosure, was amended to require additional disclosures on transition
from IAS 39 to IFRS 9. IFRS 7 is effective on adoption of IFRS 9, which is effective for annual periods
commencing on or after January 1, 2018.
(ii)
IFRS 9, Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments, which reflects all phases
of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and
Measurement and all previous versions of IFRS 9. The standard introduces new requirements for
classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods
beginning on or after 1 January 2018, with early application permitted.
(iii)
IFRS 15 Revenue from Contracts with Customers
The IASB replaced IAS 18, Revenue, in its entirety with IFRS 15, Revenue from Contracts with
Customers. The standard contains a single model that applies to contracts with customers and two
approaches to recognizing revenue: at a point in time or over time. The model features a contract-based
five-step analysis of transactions to determine whether, how much and when revenue is recognized. New
estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of
revenue recognized. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with
early application permitted.
(iv)
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16 Leases, which will replace IAS 17 Leases. This standard
introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all
leases with a term of more than twelve months, unless the underlying asset is of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments. The standard will be effective for annual
periods beginning on or after January 1, 2019, with earlier application permitted for entities that apply
IFRS 15 Revenue from Contracts with Customers at or before the date of initial adoption of IFRS 16. The
extent of the impact of adoption of the standard has not yet been determined.
3. Accounts receivable
Trade receivables
GST recoverable
2017
$
1,346
966
2,312
2016
$
84
3
87
12
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
4.
Investments
Investment at cost
Unrealized gain recognized at inception
Fair value at inception
Unrealized gain (losses) on changes in fair value
Balance, June 30, 2017
(a) Convertible debenture
Convertible
debenture
(a)
$
2,000
12,564
14,564
(3,493)
11,071
Marketable
securities
(b)
$
7,650
1,334
8,984
5,861
14,845
Derivative
(b)
$
306
380
686
(394)
292
ACE signed a Memorandum of Understanding (“MOU”) with Radient Technologies Inc. (“Radient”) dated
December 13, 2016, to evaluate an exclusive partnership for the joint development and commercialization of
standardized cannabinoid extracts.
Pursuant to the terms of the MOU, on February 13, 2017, the Company purchased a $2,000 unsecured 10%
convertible debenture of Radient, convertible into units at $0.14 per unit. Each unit consists of one common share
and one share purchase warrant, with each warrant exercisable into one common share at a price of $0.33 per
share expiring February 13, 2019. The debenture has a term of 2 years, is payable on demand during the first 5
months following issuance, and is subject to a mandatory conversion if, after 5 months from the date of issuance,
(i) the volume weighted average price (“VWAP”) of Radient’s shares is equal to or greater than $0.40 for 10
consecutive days; or the Company and Radient enter into an exclusivity, licensing, service or similar agreement.
The Company received a financing commission of $40.
The Company recognized an unrealized gain on the debenture at inception of $12,564 which is being amortized
over two years. The change in fair value during the year ended June 30, 2017, resulted in an unrealized loss of
$3,493. The fair value of the debenture at June 30, 2017, was estimated by measuring the fair value of the shares
receivable on conversion at a quoted market price of $0.49 (inception - $0.61) and the warrants receivable on
conversion using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of
1.10% (inception - $0.75%); dividend yield of 0% (inception - 0%); stock price volatility of 99.05% (inception -
102.52%), and an expected life of 1.65 years (inception - 2 years).
During the year ended June 30, 2017, the Company received 104,167 units of Radient for its interest payment of
$50. Each unit consisted of one common share and one warrant, with each warrant exercisable into one share of
Radient at a price of $0.48 per share expiring February 13, 2019.
At June 30, 2017, the fair value of the shares of $51 was based on a quoted market price of $0.49 per share and
the fair value of the warrants of $25 was estimated using the Black-Scholes pricing model with the following
assumptions: risk-free interest rate of 1.10%; dividend yield of 0%; stock price volatility of 99.05%; and an
expected life of 1.62 years.
Subsequent to the year end, the Company received 14,285,714 common shares and 14,285,714 warrants of
Radient pursuant to the mandatory conversion of the debenture related to the VWAP mentioned above. In
addition, the Company received 77,540 units of Radient for its final interest payment of $41. Each unit consisted
of one common share and one warrant, with each warrant exercisable into one common share at $0.53 per share
until February 13, 2019.
13
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
4.
Investments (Continued)
(b) Marketable securities and derivative
(i) On March 9, 2017, the Company purchased 2,777,800 units of Radient at a price of $0.45 per unit for a total
cost of $1,250. Each unit consisted of one common share and one-half of a share purchase warrant, with
each whole warrant exercisable into one common share of Radient at a price of $0.70 per share expiring
March 9, 2019.
The Company recognized an unrealized gain on marketable securities at inception of $1,334 and an
unrealized gain on derivatives at inception of $380 related to the warrant component which is being
amortized over 2 years. The Company recognized unrealized losses on changes in fair values of marketable
securities of $944 and derivatives of $390 during the year ended June 30, 2017.
At June 30, 2017, the fair value of the shares was based on quoted market prices of $0.49 (inception - $0.83)
and the fair value of the warrants was estimated using the Black-Scholes pricing model with the following
assumptions: risk-free interest rate of 1.10% (inception - $0.82%); dividend yield of 0% (inception - 0%);
stock price volatility of 99.05% (inception - 101.40%); and an expected life of 1.69 years (inception - 2
years).
(ii) On April 25, 2017, the Company subscribed to the initial public offering (“IPO”) of Cann Group Limited
(“Cann”) on the Australian Stock Exchange for 21,562,314 fully paid ordinary shares at a price of A$0.30
per share for a total investment of $6,627 (A$6,469).
As at June 30, 2017, the fair market value of the shares was $13,433 (A$13,476) based on a quoted market
price of A$0.625. The Company recognized an unrealized gain on the change in fair value of marketable
securities of $6,806 during the year ended June 30, 2017.
5.
Inventory
Harvested cannabis
Work-in-process
Finished goods
Cannabis oils
Work-in process
Finished goods
Supplies and consumables
Balance, June 30, 2017
Capitalized
cost
$
304
2,332
342
147
182
3,307
Biological asset
fair value
adjustment
$
373
2,836
Carrying
value
$
677
5,168
790
397
-
1,132
544
182
4,396
7,703
14
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
5.
Inventory (Continued)
Harvested cannabis
Work-in-process
Finished goods
Supplies and consumables
Balance, June 30, 2016
6. Biological Assets
Capitalized
cost
$
62
1,449
87
1,598
Biological asset
fair value
adjustment
$
Carrying
value
$
194
525
-
256
1,974
87
719
2,317
The Company’s biological assets consist of seeds and cannabis plants. The changes in the carrying value of biological
assets are as follows:
Balance, beginning of year
Changes in fair value less cost to sell due to biological
transformation
Transferred to inventory upon harvest
Balance, end of year
2017
$
1,845
22,772
(20,529)
4,088
2016
$
25
6,197
(4,377)
1,845
The significant assumptions used in determining the fair value of biological assets include:
(a) Expected yield by plant;
(b) Wastage of plants;
(c) Duration of the production cycle;
(d) Percentage of costs incurred as of this date compared to the total costs expected to be incurred;
(e) Percentage of costs incurred for each stage of plant growth; and
(f) Market values.
As of June 30, 2017, it is expected that the Company’s biological assets will yield approximately 599,245 grams
(2016 – 227,449 grams) of medical cannabis when harvested. The Company’s estimates are, by their nature, subject
to change and differences from the anticipated yield will be reflected in the gain or loss on biological assets in future
periods.
7. Promissory Notes Receivable
(a) Pursuant to a promissory note dated June 8, 2017, the Company advanced $750 (“Advance”) to Hempco Food
and Fiber Inc. (“Hempco”). The note is unsecured, bears interest at 8% per annum, calculated and payable
quarterly, and matures on the earliest of June 8, 2019, a demand by the Company on or after December 21, 2017,
or the completion of all or any portion of the borrower’s financing. Note 26(a).
(b) Aggregate promissory notes to other third parties of $472 are receivable on demand, bear interest at 8% per
annum, calculated monthly and compounded annually, and are secured by general security agreements.
Subsequent to the year end, the Company advanced an additional $233 on the same terms as the aforementioned
promissory notes.
15
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
8. Other current assets
Advances to CanvasRx (Note 11(a))
Prepaid expenses
Deposits and advances
9. Property, Plant and Equipment
2017
$
-
1,504
40
1,544
Building &
Improvements
$
Construction
in progress
$
Computer
Software &
Equipment
$
Furniture
& Fixtures
$
Production &
Other
Equipment
$
Finance
Lease
Equipment
$
Cost
Balance, June 30, 2015
Additions
Balance, June 30, 2016
Additions
Disposals
Balance, June 30, 2017
10,269
562
10,831
6,351
-
17,182
-
-
-
26,571
-
26,571
343
101
444
461
-
905
39
70
109
183
-
292
439
581
1,020
1,142
(12)
2,150
-
-
-
544
-
544
Building &
Improvements
$
Construction
In Progress
$
Computer
Software &
Equipment
$
Furniture
& Fixtures
$
Production &
Other
Equipment
$
Finance
Lease
Equipment
$
Accumulated Depreciation
Balance, June 30, 2015
Depreciation
Balance, June 30, 2016
Depreciation
Disposals
201
415
616
438
-
Balance, June 30, 2017
1,054
-
-
-
-
-
-
Net Book Value
June 30, 2016
June 30, 2017
10,215
16,128
-
26,571
45
117
162
221
-
383
282
522
4
15
19
40
-
59
55
182
237
351
(2)
586
-
-
-
39
-
39
90
233
783
1,564
-
505
11,370
45,523
The Company is constructing an 800,000 square foot production facility at the Edmonton International Airport
(“EIA”). As at June 30, 2017, costs related to the construction of this facility were capitalized as construction in
progress and not amortized. Amortization will commence when construction is complete and the facility is available
for its intended use.
During the year ended June 30, 2017, $1,370 in borrowing costs were capitalized to construction in progress at a
weighted average rate of 22%.
16
2016
$
450
215
71
736
Total
$
11,090
1,314
12,404
35,252
(12)
47,644
Total
$
305
729
1,034
1,089
(2)
2,121
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
10. Investment in a Joint Venture
On April 7, 2015, ACI entered into a Limited Liability Partnership Agreement with AJR Builders Group LLC and
formed Australis Holdings LLP (“AHL”), a Washington Limited Liability Partnership. Each of ACI and AJR holds a
50% interest in AHL.
AHL purchased two parcels of land totaling approximately 24.5 acres (the “Property”) in Whatcom county,
Washington for USD$2,300 in 2015, with the initial intention to construct a new cannabis production and processing
facility. The Company subsequently decided not to move forward with US cannabis production and listed the land
for sale.
Pursuant to a promissory note dated April 10, 2015, the Company through ACI loaned $1,645 to AHL to fund the
purchase of the Property. The note bears interest at a rate of 5% per annum and matures on October 31, 2017. In the
event of a default, interest will be charged at 12% per annum. The note is secured by a first mortgage on one parcel
of the Property and a second mortgage on the other title as well as a general security agreement granting ACI security
over all present and after acquired property of AHL.
During the year ended June 30, 2017, the Company accrued interest of $41 (2016 - $41) related to this loan.
Included in loans receivable are advances of $360 to AHL. The advances are unsecured, non-interest bearing and
have no fixed terms of repayment.
The following table summarizes the financial information of AHL:
(a) Statement of Financial Position:
Cash and cash equivalents
Other current assets
Total current assets
Property, plant and equipment
Total assets (100%)
Total current liabilities
Long term loans
Total equity
Total liabilities and equity (100%)
(b) Statement of Loss and Comprehensive Loss
2017
US$
106
1
107
2,300
2,407
2017
US$
283
2,415
(291)
2,407
2016
US$
7
1
8
2,300
2,308
2016
US$
83
2,378
(153)
2,308
Net loss and comprehensive loss (100%)
138
122
17
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
11. Acquisitions
(a) CanvasRx
On August 17, 2016, the Company completed the acquisition of all of the issued and outstanding shares of
CanvasRx pursuant to a Share Purchase Agreement (the “Agreement”) dated August 9, 2016, as amended and
restated on August 16, 2016 (the “Acquisition”) for a total consideration of $37,127. CanvasRx is a counseling
and outreach service provider with over 24 physical locations in the provinces of Ontario and Alberta, Canada.
The transaction was accounted for as a business combination.
Consideration
Cash paid at closing
Performance milestones achieved related to patients
17,875,000 common shares issued
Cash paid
Loan to CanvasRx
CanvasRx transaction expenses
Other liabilities assumed
Contingent consideration (1)
$
1,575
11,440
1,575
450
250
18
21,819
37,127
(1) Contingent consideration represents the discounted amount estimated to be paid out over a 20-month period
on achievement of future performance milestones related to new counseling rooms opened, patient accruals
and revenue targets.
This consideration may be satisfied, at the Company’s sole discretion, in cash or common shares at a 15%
discount to the market price at the date of issuance, unless the market price of the Company’s share is $0.47
or below, at which point the consideration is convertible into a fixed number of shares. In any case, the
issuance of the Company’s shares should not result in former CanvasRx shareholders accumulating 50% or
more of the Company’s shares. If the consideration payments cannot be satisfied in cash and the issuance of
shares would result in the former shareholders of CanvasRx accumulating 50% or more of the Company’s
shares, a convertible debenture will be issued.
During the year ended June 30, 2017, certain patient and counselling room performance milestones were
achieved, and the Company paid $2,608 and issued 2,926,103 shares at $2.074 per share to the former
shareholders of CanvasRx.
Subsequent to the year end, the Company issued 3,178,177 shares at $2.135 per share for patient, counselling
rooms and revenue milestones achieved.
All common shares issued were accounted for at fair value at the dates of issuance.
The purchase price was allocated as follows:
Net liabilities acquired
Intangible asset – customer relationships
Deferred tax liability
Goodwill
18
$
(797)
4,250
(836)
34,510
37,127
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
11. Acquisitions (Continued)
(a) CanvasRx (continued)
The Company is indemnified from any tax liability arising from pre-acquisition transactions of CanvasRx
through adjustments to the purchase consideration.
Fair values of the net liabilities acquired included the following:
Sales tax receivable
Accounts receivable
Accounts payable and accrued liabilities
Deferred revenue
Net cash outflow on the Acquisition is as follows:
Cash consideration
Add: bank overdraft
$
39
212
251
109
939
1,048
(797)
$
3,400
18
3,418
Acquisition costs of $1,022 were excluded from the consideration transferred and were recognized as an expense
in the current period.
For the year ended June 30, 2017, CanvasRx accounted for $1,702 in net loss since August 17, 2016. This amount
included revenues of $309.
(b) Peloton
On April 28, 2017, the Company, through its wholly-owned subsidiary, 10094595 Canada Inc., acquired the net
assets of Peloton, a late-stage ACMPR applicant, out of bankruptcy protection. The Company is completing
construction of the former Peloton 40,000 square foot cannabis production facility in Pointe Claire, Quebec. The
transaction was accounted for as an asset acquisition.
The Company acquired all of the common shares of Peloton for a total consideration of $9,139 consisting of:
573,707 common shares
Cash
Trustee, legal fees and other acquisition costs
Acquisition related costs - 325,518 common shares
19
$
1,486
4,562
2,186
905
9,139
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
11. Acquisitions (Continued)
(b) Peloton (continued)
The allocation of the consideration to the fair value of the net assets acquired at the date of acquisition is as
follows:
Building – construction in progress
Office, furniture and equipment
Intangible asset – ACMPR license application
$
4,401
445
4,293
9,139
The total consideration is subject to change pending settlement of all claims with the previous creditors by the
bankruptcy trustee.
(c) Pedanios
In May 2017, the Company completed the acquisition of Pedanios, a registered wholesale importer, exporter and
distributor of medical cannabis in Germany. The Company acquired all of the issued and outstanding shares of
Pedanios for a total consideration of $23,728. The transaction was accounted for as a business combination.
Consideration
Cash paid at closing (€2,000)
8,316,782 common shares issued
The purchase price was allocated as follows:
Net assets acquired
Intangible assets – permits and licenses
Goodwill
Deferred tax liability
Fair values of the net assets acquired included the following:
Cash
Trade receivables
Inventories
Prepaid expenses and deposits
Equipment
Accounts payables and accrued liabilities
20
$
3,019
20,709
23,728
$
1,184
22,544
6,590
(6,590)
23,728
$
743
358
328
6
13
1,448
264
1,184
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
11. Acquisitions (Continued)
(c) Pedanios (continued)
Net cash outflow on the Acquisition is as follows:
Cash consideration
Less: cash acquired
$
3,019
743
2,276
Acquisition costs of $243 were excluded from the consideration transferred and were recognized as an expense
in the current period.
For the year ended June 30, 2017, Pedanios accounted for $294 in net loss since May 30, 2017. This amount
included revenues of $439.
12. Intangible Assets and Goodwill
A continuity of the intangible assets for the year ended June 30, 2017 is as follows:
Cost
Customer relationships (Note 11(a))
Permits and licenses (Notes 11(b)(c))
Total
Balance at
July 1, 2016
$
Additions from
acquisitions
$
Balance at
June 30, 2017
$
-
-
-
4,250
26,837
31,087
4,250
26,837
31,087
No amortization was recorded for intangible assets for the year ended June 30, 2017.
A continuity of the goodwill for the year ended June 30, 2017 is as follows:
CanvasRx (Note 11(a))
Pedanios (Note 11(c))
Total
Balance at
July 1, 2016
$
-
-
Additions from
acquisitions
$
34,510
6,590
Balance at
June 30, 2017
$
34,510
6,590
-
41,100
41,100
21
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
13. Finance Lease
During the year ended June 30, 2017, the Company entered into finance lease agreements related to three production
equipment transactions totaling $543, of which down payments of $169 were made. The finance leases are repayable
over a period of 4 to 5 years expiring January 2021 and December 2021.
Less than 1 year
Between 1 and 4 years
Total minimum lease payments
Less: amount representing interest at approximately 8.19% to 20.26%
Present value of minimum lease payments
Less: current portion
2017
$
108
344
452
(101)
351
(69)
282
14. Short and Long Term Loans
Type of Loan
Short term
Unsecured term loan
Unsecured loans from related parties
Secured mortgage loan
Secured demand loan
(d)
19.5%
8%
(a)
(b)&(e) See below
(c)
12%
Aug. 27, 2015
See below
October 1, 2016
January 25, 2018
or on demand
Interest per
Annum
Maturity
June 30,
2017
$
June 30,
2016
$
-
-
-
-
-
-
457
1,089
1,656
2,845
6,047
3,159
Long term
Unsecured loans from related parties
(b)&(e) See below See below
(a) Prior to the RTO, the Company entered into a loan agreement dated June 27, 2014, as amended, in the principal
amount of $500 maturing December 27, 2014. In consideration for the loan, the Company issued 714,000
common shares (the “Shares”) to the lender. A partial principal payment of $100 (prior to the RTO) was made
towards the loan and the loan was extended to August 27, 2015.
On November 25, 2015, a claim was commenced by the lender in the Supreme Court of British Columbia seeking
repayment of the loan plus interest, legal costs and other relief. The Shares were in dispute as the Company
believed that it constituted interest and that the fair market value of the Shares was approximately equivalent to
the outstanding balance of the loan. On December 2, 2015, the Company paid into court $89 pursuant to a
November 27, 2015 garnishment order (“Garnished Funds”).
On July 14, 2016, the parties agreed to settle and the Company paid the outstanding loan plus accrued interest of
$459 and legal fees of $4. Included in this amount were the Garnished Funds released to the lender.
22
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
14. Short and Long Term Loans (Continued)
(b) The Company entered into unsecured promissory notes with companies controlled by the CEO and the President
of the Company dated April 1, 2015, as amended, in the principal amount of $2,500. Previously, the loans bore
interest at 8% per annum and were due on demand on or before April 1, 2016.
On October 1, 2015, the terms of these loans were amended such that they mature on the later of: (i) the Company
reporting two consecutive cash flow positive quarters; and (ii) August 1, 2016. No interest shall be paid on the
loans until the Company reports a positive cash flow quarter and, at such time, the loans will bear interest at 4%
per annum, compounded annually.
On February 1, 2016, the term of $1,000 of these loans was extended to expire on the later of: (i) the Company
reporting two consecutive cash flow positive quarters; and (ii) August 1, 2017 (“Extended Loan”). As at June 30,
2016, included in reserves was a fair value adjustment of $279 with respect to the Extended Loan and the
recognition of related party contribution related to the interest amendment using a market interest rate of 22%.
During the year ended June 30, 2017, the loans were repaid in full.
(c) On September 13, 2015, 1769474 entered into a mortgage financing (the “Mortgage”) of $1,650 on its building
and related improvements on approximately 154 acres of land located in Cremona, Alberta (“Mortgaged
Property”). The Mortgage was renewable every nine months at a renewal fee of 1.5%, and secured by a first
mortgage on the Mortgaged Property, a general security agreement and corporate guarantees.
During the year ended June 30, 2017, the Company paid interest of $149 (2016 - $151). The Mortgage was repaid
in full on March 28, 2017.
(d) The Company entered into a secured demand loan agreement dated January 22, 2016 in the principal amount of
$3,000. As consideration for the loan, the Company paid a structuring fee of $90 and legal and due diligence fees
of $30. In addition, the Company issued 300,000 warrants to the lender exercisable into common shares of the
Company at a price of $0.55 per share expiring January 25, 2020. The Company were to pay a top up fee if the
fair value of the shares on any unexercised warrants was less than the exercise price (i) on the maturity date;
and/or (ii) on completion of a successor entity or going private event.
In accordance with IAS 39, Financial Instruments: Recognition and Measurement, the warrants were evaluated
as a derivative in nature. The warrants were valued upon initial recognition at fair value using a Monte Carlo
simulation. Subsequent to initial recognition, the derivative was re-measured at fair value at each reporting date.
The warrants were initially valued at $106 and recorded as a derivative liability and debt issuance cost, amortized
over the term of the loan. The warrant derivative was subsequently adjusted to fair value at June 30, 2016 of $98.
During the nine months ended March 31, 2017, all of the warrants were exercised and $98 was reclassified from
derivative liabilities to share capital on the exercise of these warrants.
In July 2016, the Company obtained an additional loan of $1,000. As consideration for the additional loan, the
Company paid a structuring fee of $60 and an equity fee of 50,000 common shares at a fair value of $24. On
closing, the Company paid legal and due diligence fees of $60.
During the year ended June 30, 2017, the Company paid interest of $260 (2016 - $243). On September 28, 2016,
the Company repaid the loan in full and paid early redemption penalty fees of $199.
23
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
14. Short and Long Term Loans (Continued)
(e) On June 26, 2015 and October 1, 2015, the Company entered into unsecured promissory notes, as amended, in
the amounts of $2,018 and $982, respectively, with companies controlled by the CEO and the President of the
Company. The loans mature on the later of: (i) the Company reporting two consecutive cash flow positive
quarters; and (ii) August 1, 2016. No interest shall be paid on the loans until the Company reports a positive cash
flow quarter and at such time, the loans will bear interest at 4% per annum, compounded annually. As at June 30,
2016, the Company recognized a related party contribution with respect to the interest free loan and recorded
$210 in reserves using a market interest rate of 22%.
On December 1, 2015, the term of the loans was amended such that they mature on the later of: (i) the Company
reporting two consecutive cash flow positive quarters; and (ii) August 1, 2017. Included in reserves as at June
30, 2016, was a fair value of adjustment of $914 related to the loan modification calculated at a market interest
rate of 22% for the rest of the extended term.
During the year ended June 30, 2017, the loans were repaid in full.
15. Convertible Notes
Balance, June 30, 2015
Issued
Equity portion
Derivative liability
Financing fees
Accretion
Balance, June 30, 2016
Issued
Equity portion
Conversion
Interest paid
Financing fees
Accretion
Accrued interest
Balance, June 30, 2017
Long term
(a)
-
-
-
-
-
-
-
75,000
(13,209)
(122)
(849)
(2,622)
1,094
875
60,167
Long term
(b)
$
-
-
-
-
-
-
-
25,000
(5,271)
(16,745)
(989)
(899)
1,277
996
3,369
Long term
(c)
$
-
-
-
-
-
-
-
15,000
(2,107)
(12,605)
(55)
(606)
241
132
-
Long term
(d)
$
-
2,170
(269)
(217)
(437)
34
1,281
-
-
(2,135)
(2)
637
117
102
-
Total
$
-
2,170
(269)
(217)
(437)
34
1,281
115,000
(20,587)
(31,607)
(1,895)
(3,490)
2,729
2,105
63,536
The liability component of the convertible notes was valued using Company specific interest rates assuming no
conversion features existed. The debt component is accreted to its fair value over the term to maturity as a non-cash
interest charge and the equity component is presented in convertible notes reserve as a separate component of
shareholders’ equity.
(a) On May 2, 2017, the Company completed a private placement of unsecured convertible debentures (the
“Offering”) in the aggregate principal amount of $75,000. The debentures bear interest at 7% per annum, payable
semi-annually and mature on May 2, 2019. The debentures are convertible into common shares of the Company
at a price of $3.29 per share subject to a forced conversion if the VWAP of the Company’s common shares
exceeds $4.94 per share for 10 consecutive trading days. On closing, the Company paid the agent a commission
of $2,893 and legal fees and expenses of $289.
During the year ended June 30, 2017, the Company paid interest of $849 and issued 45,593 common shares on
partial conversion of $150 debentures. Note 16(b)(x)
24
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
15. Convertible Notes (Continued)
(b) On November 1, 2016, the Company completed a brokered private placement of unsecured convertible
debentures in the aggregate principal amount of $25,000. The debentures bear interest at 8% per annum, payable
semi-annually and mature on November 1, 2018. The principal amount of the debentures is convertible into
common shares of the Company at a price of $2.00 per share subject to a forced conversion if the VWAP of the
Company’s common shares equals or exceeds $3.00 per share for 10 consecutive trading days. On closing, the
Company paid the Agent a commission of $1,000 and legal fees and expenses of $139.
During the year ended June 30, 2017, the Company paid interest of $989 and issued 10,190,000 common shares
on partial conversion of $20,380 debentures. Note 16(b)(x)
Subsequent to the year end, the Company issued 50,000 common shares on partial conversion of $100 debentures.
(c) On September 28, 2016, the Company closed a brokered private placement of 10% unsecured convertible
debentures in the aggregate principal amount of $15,000. The debentures were convertible into common shares
of the Company at a price of $1.15 per share subject to a forced conversion if the VWAP of the Company’s
common shares equals or exceeds $2.00 per share for 10 consecutive trading days. On closing, the Company paid
the Agent a commission of $600 and legal fees and expenses of $105.
On October 20, 2016, the Company converted all the debentures and accrued interest pursuant to the forced
conversion related to the VWAP mentioned above. The Company issued 13,110,184 common shares on the
conversion of $15,000 debentures and interests of $77, and paid interest of $55 (Note 16(b)(x)).
(d) In May 2016, the Company completed a non-brokered private placement of 10% unsecured convertible
debentures in the principal amount of $2,050. The debentures were convertible into common shares of the
Company at a price of $0.53 per share for a period of 18 months.
The Company paid to the subscriber (i) a bonus of $120 in convertible debentures (“Bonus Debentures”) having
the same terms as the debentures; and (ii) 200,000 common shares at a deemed price of $0.53 per share as an
incentive fee. In addition, the Company paid an advisory fee of $164 and 309,434 compensation options at a fair
value of $90. Each compensation option was exercisable into one common share and one-half of one share
purchase warrant of the Company at an exercise price of $0.53 per share expiring two years from the date of
issuance. Each whole warrant was exercisable into one additional common share of the Company at a price of
$0.69 per share for a two-year period. In September 2016, all of the compensation options and warrants were
exercised.
The fair value of the Compensation Options at the date of grant was estimated as $0.19 per warrant based on the
following weighted average assumptions: Stock price volatility - 87%; Risk-free interest rate - 0.55%; Dividend
yield - 0.00%; and Expected life - 2 years.
Within six months of closing of the debenture, if the Company issued common shares in connection with a
financing or a business acquisition at a price that is 15% or more below the conversion price, the Company would
pay in cash or additional Debentures an amount equal to the difference between the conversion price and the
financing or acquisition price (“Anti-Dilution Clause”).
25
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
15. Convertible Notes (Continued)
In accordance with IAS 39, Financial Instruments: Recognition and Measurement, the debentures are considered
to contain an embedded derivative relating to the Anti-Dilution Clause. The Anti-Dilution Clause was measured
at fair value upon initial recognition using a Monte Carlo simulation and was separated from the debt component
of the debentures. The debt component of the debentures was measured upon initial recognition, based on the
present value of the cash flows associated with the debentures. Subsequent to initial recognition, the embedded
derivative component is re-measured at fair value at each reporting date while the debt component is accreted to
the face value of the debentures using the effective interest rate through periodic charges to finance expense over
the term of the debentures.
On July 28, 2016, the Company reached an agreement with the debenture holders to amend certain aspects of the
Anti-Dilution Clause. As consideration for the amendment, the Company reduced the conversion price from
$0.53 to $0.40 per common share and issued an aggregate of 2,712,500 warrants at a fair value of $877 to the
debenture holders. The warrants were exercisable into common shares of the Company at a price of $0.55 per
common share expiring August 9, 2018. In December 2016, all of these warrants were exercised.
The fair value of the warrants at the date of grant was estimated as $0.32 per warrant based on the following
weighted average assumptions: Stock price volatility - 87%; Risk-free interest rate - 0.49%; Dividend yield -
0.00%; and Expected life - 2 years.
In September 2016, the Company issued an aggregate of 5,674,542 shares on the conversion of $2,050 debentures
and interests of $100 and Bonus Debentures of $120 (Note 16(b)(x)). $217 was reclassified from derivative
liabilities to share capital on the conversion of these debentures.
16. Share Capital and Reserves
(a) Authorized
Unlimited number of common voting shares without par value;
Unlimited number of Class “A” Shares with a par value of $1.00 each; and
Unlimited number of Class “B” Shares with a par value of $5.00 each.
(b) Issued and outstanding
At June 30, 2017, there were 366,549,244 (2016 - 135,576,365) issued and fully paid common shares.
On July 13, 2016, the Company entered into an agreement for a drawdown equity facility of up to $5,000 (the
“Equity Facility”). Under the Equity Facility, the Company may sell, on a private placement basis, units of the
Company of between $100 to $500 per tranche, at a discount of 25% to the market price or such lesser discounts
as allowed by the Exchange, over a period of eighteen months. Each unit will consist of one common share and
one-half of one common share purchase warrant. Each whole warrant will be exercisable into one common share
at a 25% premium to the market price for a period of 5 years from the date of issuance. To date, the Company
has not drawn down on this Equity Facility.
(i)
On May 26, 2017, the Company issued 8,316,782 shares at a fair value of $20,709 pursuant to the
acquisition of Pedanios. (Note 11(c))
(ii) During the year ended June 30, 2017, the Company issued 2,926,103 common shares at a fair value of
$7,408 for contingent consideration. (Note 11(a))
26
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
16. Share Capital and Reserves (Continued)
(b) Issued and outstanding (continued)
(iii)
In April 2017, the Company issued an aggregate of 899,225 common shares with a fair value of $2,391
pursuant to the acquisition of Peloton. (Note 11(b))
(iv) On February 28, 2017, the Company closed a brokered private placement of 33,337,500 units at a price of
$2.25 per unit for gross proceeds of $75,009. Each unit consisted one common share and one-half of one
common share purchase warrant of the Company. Each warrant is exercisable into one common share at
an exercise price of $3.00 per share for a period of two years, subject to a forced exercise provision if the
Company's VWAP equals or exceeds $4.50 for 10 consecutive trading days.
Total cash share issue costs amounted to $4,479 which consisted of underwriters’ commissions of $4,197,
underwriters’ expenses of $95, legal fees of $121 and regulatory fees of $66. In addition, the Company
issued an aggregate of 1,865,249 compensation warrants to the underwriters at a fair value of $2,782. The
compensation warrants have the same terms as the private placement and expire February 28, 2019. The
fair value of the compensation warrants at the date of grant was estimated at $0.99 per warrant based on
the following weighted average assumptions: Stock price volatility - 79%; Risk-free interest rate - 0.70%;
Dividend yield - 0.00%; and Expected life - 2 years.
(v) On August 30, 2016, the Company issued 25,510 (2016 - 22,728) common shares to an officer of the
Company at a fair value of $13 (2016 - $13) pursuant to an employment agreement.
(vi) On August 17, 2016, 17,875,000 common shares were issued at a fair value of $11,440 pursuant to the
acquisition of CanvasRx. (Note 11(a))
(vii)
In conjunction with the acquisition of CanvasRx, the Company completed a brokered private placement
of 57,500,000 subscription receipts for aggregate gross proceeds of $23,000 (the “Offering”). Each
subscription receipt was converted into units of the Company at a price of $0.40 per unit upon the
satisfaction of the conditions precedent to the acquisition. Each unit consisted of one common share and
one-half of one common share purchase warrant of the Company. Each whole warrant was exercisable
into one common share of the Company at an exercise price of $0.55 per share expiring August 9, 2018.
A portion of the net proceeds from the Offering was used to satisfy the cash component of the acquisition.
Total cash share issue costs with respect to the Offering amounted to $1,804 which consisted of agent’s
commission of $1,473, agent’s legal, advisory fees and expenses of $219, transfer agent fees of $16 and
legal fees of $96. In addition, the Company issued aggregate compensation warrants of 3,775,000 to the
agents at a fair value of $1,848. The compensation warrants have the same terms as the private placement
and expire August 9, 2018. The fair value of the compensation warrants at the date of grant was estimated
at $0.33 per warrant based on the following weighted average assumptions: Stock price volatility - 79%;
Risk-free interest rate - 0.70%; Dividend yield - 0.00%; and Expected life - 2 years.
(viii) On August 17, 2016, 20,000,000 common shares were issued on achievement of performance milestones
pursuant to the RTO. The amount of $2,322 was reclassified from reserves to share capital on the issuance
of these shares.
(ix) On July 14, 2016, 50,000 common shares were issued at a fair value of $24 for financing fees. Note 14(d)
(x) During the year ended June 30, 2017, an aggregate of 29,020,319 (2016 - 3,928,000) common shares were
issued on the conversion of $37,580 (2016 - $491) convertible notes. $4,800 (2016 - $171) was reclassified
from reserves to share capital on the conversion of these notes. Notes 15(a), (b), (c), and (d).
27
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
16. Share Capital and Reserves (Continued)
(b) Issued and outstanding (continued)
(xi) During the year ended June 30, 2017, 2,001,700 stock options (2016 - 2,975,829) were exercised for gross
proceeds of $821 (2016 - $161). Non-cash compensation charges of $578 (2016 - $354) were reclassified
from reserves to share capital on the exercise of these options.
(xii) During the year ended June 30, 2017, 54,936,306 (2016 - 564,000) warrants were exercised for gross
proceeds of $26,602 (2016 - $56). Non-cash compensation charges of $2,046 (2016 - $nil) were
reclassified from reserves to share capital on the exercise of these warrants.
(xiii) During the year ended June 30, 2017, 4,084,434 (2016 - Nil) compensation options were exercised for
gross proceeds of $1,674 (2016 - $Nil). Non-cash compensation charges of $1,292 (2016 - $nil) were
reclassified from reserves to share capital on the exercise of these compensation options.
(xiv) During the year ended June 30, 2016, the Company closed a non-brokered private placement consisting of
9,091,670 units at a price of $0.53 per unit for gross proceeds of $4,819. Each unit consisted of one
common share and one common share purchase warrant. Each warrant entitled the holder to purchase an
additional common share of the company at a price of $0.66 per common share for a period of two years.
The Company paid finders' fees of $190 and issued finders' warrants of 158,920 at a fair value of $45. The
warrants were exercisable into common shares of the Company at a price of $0.53 per share for a period
of two years. The fair value of these warrants at the date of grant was estimated at $0.29 per warrant based
on the following weighted average assumptions: Stock price volatility - 87%; Risk-free interest rate -
0.41%; Dividend yield - 0.00%; and Expected life - 2 years.
(xv) During the year ended June 30, 2016, the Company issued an aggregate of 200,000 common shares at a
fair value of $106 as incentive fees. Note 15(d)
(c) Escrow securities
Pursuant to an escrow agreement dated September 18, 2014, 60,000,000 common shares of the Company were
deposited into escrow with respect to the RTO. In addition, warrants at $0.02 per share expiring December 9,
2019 and stock options at $0.001 per share expiring December 1, 2019 were also subject to the escrow agreement.
Under the escrow agreement, 10% of the escrowed common shares were released from escrow on December 9,
2014, the date of closing of the RTO, and 15% are to be released every nine months thereafter over a period of
36 months. The common shares to be issued and deposited in escrow on the exercise of warrants and options are
subject to the same schedule of release.
28
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
16. Share Capital and Reserves (Continued)
(c) Escrow securities (continued)
A summary of the status of the escrowed securities outstanding follows:
Balance, June 30, 2015
Issued (Exercised)
Released
Balance, June 30, 2016
Issued (Exercised)
Forfeited
Released
Balance, June 30, 2017
(1) See Note 22(b)(i)
(d) Stock options
Shares
#
47,887,500
2,400,000
(20,475,000)
29,812,500
20,000,000
-
(36,875,000)
12,937,500
Stock Options
#
2,400,000
(2,400,000)
-
-
-
-
-
-
Warrants (1)
#
9,000,00
-
-
9,000,000
(8,000,000)
(1,000,000)
-
-
The Company has an incentive stock option plan, which provides that the Board of Directors of the Company may
from time to time, in its discretion, and in accordance with the Exchange requirements, grant to directors, officers,
employees and consultants, non-transferable options to purchase common shares, provided that the number of
common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares of the
Company. A summary of the status of the options outstanding follows:
Balance, June 30, 2015
Granted
Exercised
Forfeited
Balance, June 30, 2016
Granted
Exercised
Forfeited
Balance, June 30, 2017
Stock
Options
#
4,504,000
4,877,500
(2,975,829)
(1,095,837)
5,309,834
12,170,000
(2,001,700)
(244,568)
15,233,566
Weighted Average
Exercise Price
$
0.17
0.39
0.05
0.49
0.37
2.21
0.41
0.74
1.84
29
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
16. Share Capital and Reserves (Continued)
(d) Stock options (continued)
The following table summarizes the stock options that remain outstanding as at June 30, 2017:
Exercise Price
$
0.295
0.295
0.30
0.30
0.30
0.30
0.30
0.34
0.40
0.46
0.55
0.58
0.66
1.30
2.18
2.25
2.56
2.62
2.27
2.49
Options Outstanding
#
250,000
125,000
240,000
581,009
175,002
150,000
12,500
137,000
350,000
800,000
80,000
300,000
350,000
1,178,055
350,000
2,800,000
2,100,000
50,000
2,500,000
2,705,000
15,233,566
Expiry Date
June 2, 2020
August 26, 2020
August 10, 2020
August 14, 2020
September 1, 2020
September 8, 2018
September 8, 2018
May 23, 2020
March 10, 2019
May 20, 2021
February 8, 2021
March 14, 2021
August 8, 2021
September 23, 2021
October 12, 2021
August 25, 2021
January 19, 2022
February 24, 2022
March 22, 2022
May 11, 2022
Options Exercisable
#
250,000
20,833
94,167
272,676
2
83,333
12,500
87,000
350,000
-
66,667
206,250
87,500
616,110
175,000
1,720,833
262,500
8,333
208,333
-
4,522,037
During the year ended June 30, 2017, the Company recorded aggregate share-based payments of $7,584 (2016 -
$687) for all stock options granted and vested during the period.
The fair value of stock options granted during the period was determined using the following weighted average
assumptions at the time of grant using the Black-Scholes option pricing model:
Risk-Free Annual Interest Rate
Expected Annual Dividend Yield
Expected Stock Price Volatility
Expected Life of Options
Forfeiture rate
2017
2016
0.68%
0%
79.0%
3.03 years
5%
0.57%
0%
87.0%
3.75 years
5%
Volatility was estimated by using the historical volatility of other companies that the Company considers
comparable that have trading history and volatility history. The expected life in years represents the period of
time that options granted are expected to be outstanding. The risk-free rate is based on Canada government bonds
with a remaining term equal to the expected life of the options.
The weighted average fair value of stock options granted during the year ended June 30, 2017 was $1.15 (2016
- $0.24) per option. As at June 30, 2017, stock options outstanding have a weighted average remaining contractual
life of 4.22 years.
30
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
16. Share Capital and Reserves (Continued)
(e) Share purchase warrants
Each whole warrant entitles the holder to purchase one common share of the Company. A summary of the status
of the warrants outstanding follows:
Balance, June 30, 2015
Issued
Exercised
Expired
Balance, June 30, 2016
Issued
Forfeited
Exercised
Balance, June 30, 2017
Warrants
#
20,014,000
9,550,590
(564,000)
(250,000)
28,750,590
50,173,466
(1,000,000)
(54,936,306)
22,987,750
Weighted average
exercise price
$
0.28
0.65
0.10
1.01
0.40
1.36
0.02
0.48
2.32
During the year ended June 30, 2017, share-based payments of $Nil (2016 - $226) were recognized related to
warrants for consulting services.
The following table summarizes the warrants that remain outstanding as at June 30, 2017:
Exercise Price
$
0.50
0.55
0.55
3.00
Warrants
#
2,360,000
61,500
3,897,500
16,668,750
22,987,750
Expiry Date
December 9, 2017
August 9, 2018
August 17, 2018
February 28, 2019
(f) Compensation options/warrants
Each compensation option/warrant entitles the holder to purchase one common share and one-half of one share
purchase warrant of the Company. Each whole warrant is exercisable into one additional common share of the
Company for a period of two years. A summary of the status of the compensation options/warrants outstanding
follows:
Balance, June 30, 2015
Issued
Exercised
Expired
Balance, June 30, 2016
Issued
Exercised
Balance, June 30, 2017
31
Compensation
options/warrants
#
-
309,434
-
-
309,434
5,640,249
(4,084,434)
1,865,249
Weighted average
exercise price
$
-
0.53
-
-
0.53
1.01
0.41
2.25
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
17. General and Administration
Professional fees
Office and administration
Wages and benefits
18. Sales and Marketing
Consulting fees
Branding, public and media relations, and tradeshows
Selling and client care expenses
Wages and benefits
19. Finance and Other Costs
Accretion expense
Bank charges
Financing fees
Interest expense
20. Income Taxes
2017
$
1,793
1,450
3,570
6,813
2017
$
3,678
1,073
4,015
1,504
10,270
2017
$
3,570
28
1,692
1,292
6,582
2016
$
1,201
693
1,121
3,015
2016
$
93
661
493
459
1,706
2016
$
623
10
192
619
1,444
The net tax provision differs from that expected by applying the combined federal and provincial tax rates of 26%
(2016 - 26%) to loss before income tax for the following reasons:
Loss before tax
Combined federal and provincial rate
Expected tax recovery
Change in estimates from prior year
Non-deductible expenses
Difference in statutory tax rate
Effect of change in tax rates
Changes in deferred tax benefits not recognized
Income tax recovery
32
2017
$
(17,264)
26%
(4,489)
(205)
2,294
(16)
(21)
(1,859)
(4,296)
2016
$
(5,872)
26%
(1,527)
121
138
-
-
1,119
(149)
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
20. Income Taxes (Continued)
Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of asset and liabilities
for financial reporting purposes and their tax values. Movements in deferred tax assets (liabilities) at June 30, 2017
and 2016 are comprised of the following:
Deferred tax assets
Non-capital losses
Finance costs
Investment tax credit
Total deferred tax assets
Deferred tax liabilities
Convertible debenture
Marketable securities
Customer relationships
Property, plant and equipment
License and federal permits
Inventory
Biological assets
Total deferred tax liabilities
Net deferred tax assets (liabilities)
Deferred tax assets not recognized
Deferred tax assets
Non-capital losses
Finance costs
Total deferred tax assets
Deferred tax liabilities
Convertible debenture
Property, plant and equipment
Inventory
Biological assets
Total deferred tax liabilities
Net deferred tax assets (liabilities)
Deferred tax assets not recognized
As of
June 30,
2016
$
3,240
232
-
3,472
(195)
-
-
(158)
-
(313)
(498)
(1,164)
2,308
(2,308)
-
As of
June 30,
2015
$
1,325
61
1,386
(61)
(136)
-
-
(197)
1,189
(1,189)
-
Deferred tax
assets (liabilities)
assumed from
acquisition
$
321
-
-
321
-
-
(1,126)
(4)
(6,617)
-
-
(7,747)
(7,426)
-
(7,426)
Deferred tax
assets (liabilities)
assumed from
acquisition
$
-
-
-
-
-
-
-
-
-
-
-
Recovered
through
(charged to)
earnings
$
Recovered through
(charged to) other
comprehensive
income
$
Recovered
through
(charged to)
equity
$
As of
June 30,
2017
$
7,637
3,520
75
11,232
(4,170)
(745)
(1,126)
(98)
(6,617)
(1,672)
(1,088)
(15,516)
(4,284)
(1,653)
-
3,050
-
3,050
(3,749)
-
-
-
-
-
-
(3,749)
(699)
(1,204)
(1,903)
(5,937)
4,076
238
75
4,389
(226)
140
-
64
-
(1,359)
(590)
(1,971)
2,418
1,859
4,277
-
-
-
-
-
(885)
-
-
-
-
-
(885)
(885)
-
(885)
Recovered
through
(charged to)
earnings
$
Recovered through
(charged to) other
comprehensive
income
$
Recovered
through
(charged to)
equity
$
1,915
171
2,086
(134)
(22)
(313)
(498)
(967)
1,119
(1,119)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
As of
June 30,
2016
$
3,240
232
3,472
(195)
(158)
(313)
(498)
(1,164)
2,308
(2,308)
-
As of June 30, 2017, the Company has recognized deferred tax assets of $566 and liabilities of $6,504 from its
Canadian and German entities, respectively. The Company has non-capital losses of approximately $32,605 (2016 -
$12,209) which are available for deduction against future taxable income until years 2026 to 2036. The Company
does not recognize the benefit of $6,357 of its total non-capital losses and financing costs as it is not probable that the
benefit of these attributes will be realized.
33
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
21. Related Party Transactions
(a) Goods and services
The Company incurred the following transactions with related parties during the year ended June 30, 2017:
Consulting fees paid or accrued to directors of ACE
Office, rent and administration paid or accrued to companies owned by
directors and officers and a former director of the Company
Operational, administrative and service fees paid or accrued pursuant to
an agreement between CanvasRx and a company having a director in
common with the Company
Consulting fees paid to a company owned by an officer of the Company
Consulting fees paid to a company controlled by a director of the
Company for scientific, research and development services
Consulting fees paid to a company controlled by a director of the
Company for financial and other advisory services
Professional fees paid or accrued to a former officer of the Company
2017
$
211
130
3,659
780
44
57
-
4,881
2016
$
300
172
-
-
59
20
3
554
(b) Compensation of key management personnel
The Company’s key management personnel have the authority and responsibility for planning, directing and
controlling the activities of the Company and consists of the Company’s executive management team and
management directors.
Management compensation
Directors’ fees (1)
Share-based payments (2)
2017
$
1,934
258
6,431
8,623
2016
$
368
59
198
625
(1) Include meeting fees and committee chair fees.
(2) Share-based payments are the fair value of options granted and vested to key management personnel and
directors of the Company under the Company’s stock option plan. Note 16(d).
34
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
21. Related Party Transactions (Continued)
(c) Related party balances
The following related party amounts were included in (i) accounts receivable, (ii) accounts payable and accrued
liabilities, (iii) prepaid expenses and deposits, (iv) short term loans, (v) long term loans and (vi) note receivable:
(i) A company having a director in common
(ii) Companies controlled by directors and officers of the Company (1)
(ii) Directors and officers and a former director and officer of the Company (1)
(iii) A company having a former director in common
(iv) Companies controlled by directors and officers of the Company (Note 14(b))
(v) Companies controlled by directors and officers of the Company (Notes 14(b)
& 14(e))
(vi) A 50% owned joint venture company (Note 10)
(1) The amounts are unsecured, non-interest bearing and have no specific repayments term.
2017
$
72
76
565
-
-
-
2,096
2016
$
-
102
36
2
1,090
3,159
1,782
22. Commitments and Contingencies
(a) Office and operating leases
(i) 1769474 has an operating lease on lands located in Cremona, Alberta (the “Lands”) for monthly rent
payments of $5. The lease expires on November 14, 2019, with an option to extend for an additional five-
year term. The Company has the option to purchase the Lands during the additional term.
(ii) The Company is committed under lease and sublease agreements with respect to two office premises located
in Vancouver, British Columbia, expiring December 31, 2017 and June 30, 2020, and sublease agreements
with respect to clinics located across Canada expiring between August 1, 2019 and December 1, 2023, as
follows:
2018
2019
2020
2021
2022
Thereafter
$
624
717
657
421
298
55
2,772
(iii) The Company entered into an agreement to lease approximately 30 acres of land at the EIA for the
development of a production facility. The lease has a term of fifteen years with monthly rent payments of
$69 for the first five years, increasing to monthly payments of $76 and $83 in the fifth and tenth year of the
lease term, respectively. The first monthly installment is payable on or before the earlier of (i) the date that
an occupancy permit has been issued for the facility by Leduc County, and (ii) May 1, 2018. The Company
has eight options to renew the term of the lease, each option for an additional five years exercisable at the
Company’s discretion.
35
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
22. Commitments and Contingencies (Continued)
(a) Claims and litigation
(i)
In December 2016, a claim was commenced against the Company regarding the 9,000,000 warrants at $0.02
per share issued to a consultant prior to the RTO. These warrants were issued conditional upon the warrant
holder completing an equity financing for the Company. In January 2016, this claim was amended to include
3,000,000 performance warrants exercisable at $0.02 per share, issued pursuant to the RTO. These warrants
were cancelled on April 21, 2016 as the funding milestones were not met (“Cancelled Warrants”).
The parties agreed to settle pursuant to a Settlement Agreement and Mutual Release dated January 9, 2017
(the “Settlement”). Of the 9,000,000 warrants, 1,000,000 were cancelled and the remaining 8,000,000
warrants were allowed to be exercised by the Company subject to certain conditions, and the claim related
to the Cancelled Warrants was dismissed.
(ii) The Company commenced a claim against a former director and officer of the Company and his associates
relating to breach of contract, abuse of process and unreimbursed expenses. The former director and
associates filed various counterclaims against the Company.
Pursuant to the Settlement (Note 22(b)(i)), the parties agreed to mutually release each of the other parties
from all claims and counterclaims.
(iii) A certain claim in small claims court was brought against the Company with respect to certain fees and
expenses in the aggregate amount of approximately $25. On January 19, 2017, the court ruled in favor of
the Company and dismissed the claim in its entirety.
In January 2017, the Company settled all of the above claims. As of the date hereof, management is not aware of
any material claims or possible claims against the Company.
23. Segmented Information
The Company operates in two segments, the production and sale of medical cannabis and patient counselling and
outreach service.
2017
Revenues
Gross profit
Loss from operations
Net loss
As at June 30, 2017
Total assets
Total liabilities
Medical
Cannabis
$
15,922
13,982
(9,501)
(11,266)
321,644
102,374
Patient
Counselling
$
2,145
2,074
(1,691)
(1,702)
1,035
1,372
Total
$
18,067
16,056
(11,192)
(12,968)
322,679
103,746
During the year ended June 30, 2016, the Company’s operations consisted of the production and sale of medical
cannabis.
36
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
23. Segmented Information (Continued)
The Company generates revenue in two geographical locations, in Canada and in Germany.
2017
Revenues
Gross profit
Loss from operations
Net loss
As at June 30, 2017
Total assets
Total liabilities
Canada
$
17,628
15,916
(10,895)
(12,674)
321,251
96,678
Germany
$
439
140
(297)
(294)
1,428
7,068
Total
$
18,067
16,056
(11,192)
(12,968)
322,679
103,746
During the year ended June 30, 2016, all of the Company’s assets were located in Canada. All revenues in the year
ended June 30, 2016 were generated in Canada.
24. Financial Instruments and Risk Management
(a) Fair value of financial instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, marketable
securities, promissory notes receivable, convertible debenture receivable, loans receivable, derivative, accounts
payable and accrued liabilities and convertible notes. The carrying values of these financial instruments
approximate their fair values as at June 30, 2017.
Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance
of the inputs to fair value measurements. The three levels of hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly;
and
Level 3 – Inputs for the asset or liability that are not based on observable market data.
There have been no transfers between fair value levels during the year.
37
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
24. Financial Instruments and Risk Management (Continued)
(a) Fair value of financial instruments (continued)
The following table summarizes the Company’s financial instruments as at June 30, 2017:
Financial Assets
Cash and cash equivalents
Accounts receivable
Marketable securities
Promissory notes receivable
Loans receivable
Convertible debenture
Derivative
Financial Liabilities
Accounts payable
Deferred revenue
Finance lease
Convertible notes (1)
Available-for-
sale financial
assets
$
-
-
14,845
-
-
-
-
-
-
-
-
-
Loans and
receivables
$
159,796
2,312
-
1,222
2,096
-
-
-
-
-
-
-
Financial
assets at
FVPTL
$
-
-
-
-
-
11,071
292
Other
financial
liabilities
$
-
-
-
-
-
-
-
-
-
-
-
-
8,753
1,421
351
63,536
Total
$
159,796
2,312
14,845
1,222
2,096
11,071
292
8,753
1,421
351
63,536
(1) The fair value of convertible notes includes both the debt and equity components.
The following is a summary of financial assets measured at fair value segregated based on the various levels of
inputs (Notes 4(a) and 4(b)):
Marketable securities
Convertible debenture
Warrant derivative
Level 1
$
14,845
-
-
Level 2
$
-
-
-
Level 3
$
-
11,071
292
Total
$
14,845
11,071
292
Changes in level 3 financial assets for the year were as follows:
Opening balance
Additions
Unrealized gains at inception deferred
Unrealized losses
Ending balance
Warrant
Derivative
$
-
306
380
(394)
292
Convertible
Debenture
$
-
2,000
12,564
(3,493)
11,071
38
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
24. Financial Instruments and Risk Management (Continued)
(a) Fair value of financial instruments (continued)
Changes in deferred gains on convertible debenture and derivative measured at fair value and included in level 3
of the fair value hierarchy were as follows:
Opening balance
Unrealized gains at inception deferred
Unrealized gains amortized
Ending balance
Warrant
Derivative
$
-
380
(59)
321
Convertible
Debenture
$
-
12,564
(2,358)
10,206
The Company determines the fair value of its derivative liabilities (Notes 14(d), 15(d)) using a Monte Carlo
simulation approach. Monte Carlo simulation approaches are a class of computational algorithms that rely on
repeated random sampling to compute their results. The Company’s share price paths were developed using a
mathematical formula based on a stochastic process with mean reversion to a long-term trend line incorporating
current Company stock prices and stock volatility, both observable data points. Assumptions regarding
requirements for future financings are unobservable and accordingly the derivatives are classified in Level 3 of
the fair value hierarchy.
Changes in derivative liabilities measured at fair value and included in level 3 of the fair value hierarchy were as
follows:
Opening balance
Initial recognition
Gain /loss on re-measurement to fair value at period end
Reclassification upon repayment of loans
Ending balance
2017
$
233
-
(233)
-
2016
$
-
323
(90)
-
233
The Company’s liability for the CanvasRx contingent consideration was measured at fair value based on
unobservable inputs, and was considered a level 3 financial instrument. The fair value of the liability determined
by this analysis was primarily driven by the Company’s expectations of CanvasRx achieving the milestones. The
expected milestones were assessed probabilities by management which was then discounted to present value in
order to derive a fair value of the contingent consideration. The primary inputs of the calculation were the
probabilities of achieving the milestones and a discount rate.
39
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
24. Financial Instruments and Risk Management (Continued)
(b) Financial instruments risk
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board mitigates
these risks by assessing, monitoring and approving the Company’s risk management processes:
(i) Credit risk
Credit risk is the risk of a potential loss to the Company if a customer or third party to a financial instrument
fails to meet its contractual obligations. The Company is moderately exposed to credit risk from its cash and
cash equivalents, trade and other receivables, convertible debenture asset and promissory notes receivable.
The risk exposure is limited to their carrying amounts at the statement of financial position date. The risk
for cash and cash equivalents is mitigated by holding these instruments with highly rated Canadian financial
institutions. The Company does not invest in asset-backed deposits or investments and does not expect any
credit losses. The Company periodically assesses the quality of its investments and is satisfied with the
credit rating of the financial institutions and the investment grade of its guaranteed investment certificates.
Trade and other receivables primarily consist of trade accounts receivable and goods and services taxes
recoverable (“GST”). Credit risk from the convertible debenture asset and promissory notes receivable
arises from the possibility that principal and/or interest due may become uncollectible. The Company
mitigates this risk by managing and monitoring the underlying business relationships.
The Company provides credit to its customers in the normal course of business and has established credit
evaluation and monitoring processes to mitigate credit risk, but has limited risk as the majority of sales are
transacted with credit cards.
As at June 30, 2017, the Company’s aging of receivables was approximately as follows:
0 – 60 days
61 – 120 days
(ii) Liquidity risk
2017
$
1,534
778
2,312
2016
$
-
87
87
Liquidity risk is the risk that the Company will not be able to meet its financial obligations associated with
financial liabilities. The Company manages liquidity risk through the management of its capital structure.
The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle
obligations and liabilities when due.
In addition to the commitments outlined in Note 22, the Company has the following contractual obligations:
Accounts payable and accrued liabilities
Deferred revenue
Finance lease
Convertible notes
Total
$
8,753
1,421
452
79,470
90,096
<1 year
$
8,753
1,421
107
-
10,281
1 - 3 years
$
-
-
345
79,470
79,815
3 -5 years
$
-
-
-
-
-
40
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
24. Financial Instruments and Risk Management (Continued)
(b) Financial instruments risk (continued)
(iii) Market risk
a) Currency risk
The operating results and financial position of the Company are reported in Canadian dollars. As the
Company operates in an international environment, some of the Company’s financial instruments and
transactions are denominated in currencies other than the Canadian dollar. The results of the Company’s
operations are subject to currency transaction and translation risks.
The Company holds cash in Canadian dollars and Euros, and investments in Australian dollars. The
Company’s main risk is associated with fluctuations in the Euros and Australian dollars and assets and
liabilities are translated based on the foreign currency translation policy described in Note 2.
The Company has determined that an effect of a 10% increase or decrease in the Australian dollar and
Euro against the Canadian dollar on financial assets and liabilities, as at June 30, 2017, including cash,
marketable securities and accounts payable and accrued liabilities denominated in Euros and Australian
dollars, would result in an increase or decrease of approximately $1,430 (2016 - $Nil) to the net loss
and comprehensive loss for the year ended June 30, 2017.
At June 30, 2017, the Company had no hedging agreements in place with respect to foreign exchange
rates. The Company has not entered into any agreements or purchased any instruments to hedge possible
currency risks at this time.
b) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. Cash and cash equivalents bear interest at market rates. The
Company’s investments, loans receivables and financial debt have fixed rates of interest and therefore
expose the Company to a limited interest rate fair value risk.
(c) Price risk
Price risk is the risk of variability in fair value due to movements in equity or market prices. The
Company’s marketable securities and investments are susceptible to price risk arising from uncertainties
about their future values. The fair value of marketable securities is based on quoted market prices which
the shares of the investments can be exchanged for.
If the fair value of these financial assets were to increase or decrease by 10%, the Company would incur
an associated increase or decrease in net loss and comprehensive loss of approximately $2,823 (2016 -
$Nil). See note 4 for additional details regarding the fair value of investments and marketable securities.
41
AURORA CANNABIS INC.
Notes to the Consolidated Financial Statements
Years ended June 30, 2017 and 2016
(In thousands of Canadian dollars, except share and per share amounts)
25. Capital Management
The Company’s objectives when managing capital are to ensure that there are adequate capital resources to safeguard
the Company’s ability to continue as a going concern and maintain adequate levels of funding to support its ongoing
operations and development such that it can continue to provide returns to shareholders and benefits for other
stakeholders.
The capital structure of the Company consists of items included in shareholders’ equity and debt, net of cash and cash
equivalents. The Company manages its capital structure and makes adjustments to it in light of changes in economic
conditions and the risk characteristics of the Company’s underlying assets. The Company plans to use existing funds,
as well as funds from the future sale of products to fund operations and expansion activities.
As at June 30, 2017, the Company is not subject to externally imposed capital requirements.
10.
26. Subsequent Events
The following events occurred subsequent to June 30, 2017:
(a) The has Company entered into an amended and restated subscription agreement to purchase 10,558,676 units of
Hempco at $0.3075 per unit for gross proceeds of $3,247 (the “Investment”). Each unit consists of one common
share and one share purchase warrant. Each warrant will be exercisable at a price of $0.41 per share for a period
of two years, subject to accelerated expiry if Hempco’s shares trade at or above a VWAP of $0.65 for any 30-
day period following closing of the Investment. The closing of the private placement is subject to conditions,
including the execution of an option agreement with the majority owners of Hempco and an investor rights
agreement, TSX Venture, TSX and Hempco disinterested shareholder approval. Upon closing, the Company will
hold approximately 23% of the share capital of Hempco on a fully diluted basis.
On September 15, 2017, the Company and Hempco executed an Option Agreement (the “Option”) to acquire up
to an aggregate of 10,754,942 shares from the majority owners of Hempco, which, upon exercise, would bring
the Company’s total ownership interest in Hempco to over 50.1% on a fully diluted basis. If the Company elects
to exercise the Option, the shares will be acquired in tranches, the pricing of which, is contingent on certain
performance milestones of Hempco.
On September 15, 2017, the Company and Hempco executed an Investor Rights Agreement that will allow
Aurora to nominate two directors to the Hempco Board of Directors, require that Hempco adopt an expenditure
policy, provide for certain matters related to cannabidiol extraction from hemp, and provide Aurora with anti-
dilution protection.
The Option and the Investor Rights Agreement will become effective on the closing of Hempco’s private
placement which remains subject to disinterested Hempco shareholder approval
In connection with the transaction, Aurora has advanced an additional $1,500 to Hempco (the “Loan”). The Loan
is secured and bears interest at a rate of 10% per annum. The Loan and the Advance will be repaid to the Company
out of the proceeds of Hempco’s private placement. If the private placement does not close, the Loan and Advance
will mature on December 21, 2017. (Note 7(a))
(b) 583,580 common shares were issued on the exercise of 583,580 options for gross proceeds of $563.
(c) 1,208,750 common shares were issued on the exercise of 1,208,750 warrants for gross proceeds of $545.
42