Aurora Cannabis Inc

TSX:ACB

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, everyone. Welcome to the Aurora Cannabis Third Quarter Fiscal 2019 Conference Call for the 3 months ending March 31, 2019. During today's call, Aurora will be referring to an earnings presentation, which listeners are encouraged to download from the Financial Reports section of the company's investor website, investor.auroramj.com.Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to the risks and uncertainties relating to Aurora's future, financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in Aurora's annual information form and other periodic filings and registration statements. These documents may be accessed via SEDAR and EDGAR databases.I would like to remind everyone that this call is being recorded today, Wednesday, May 15, 2019.I would now like to introduce Mr. Cam Battley, Chief Corporate Officer of Aurora Cannabis. Please go ahead, Mr. Battley.

[Cameron Battley, Chief Corporate Officer]

Thank you, Chris. Good morning, everyone, and thank you for joining today's conference call. It's a beautiful sunny day in New York. With me are Terry Booth, our Chief Executive officer; Glen Ibbott, our Chief Financial Officer; and our Executive Chairman, Michael Singer.For today's call, I'll start by discussing some of our operational highlights for the past quarter and then Glen will discuss the financials. I'll then briefly return to present our outlook for the rest of the year and beyond. And then we'll take your questions.As we do each quarter, I'm going to start with a few ad hoc observations to frame the conversation, then proceed to the formal comments. Now our operator, Chris, mentioned that a short earnings call presentation is now available in the financial section of our investor website, investor.auroramj.com.And I'd like to draw your attention to something new we've developed on Slide 3. It's a dashboard of key performance indicators. They really tell the story of our solid performance during the quarter. But more importantly, they make it very clear where we're headed, including our path to profitability. So for those of you who can see it, and even for those who don't, I'm just going to run through it very quickly 9 of these key performance indicators that we brought together to simplify and clarify the snapshot of where we are.And they include some very important results for us in the quarter, including growth across all distribution channels. So our consumer cannabis revenue in Canada up 37%, our medical cannabis revenue in Canada up 8%, and our international medical cannabis revenue up 38%. And that all averaged out to 20% quarter-over-quarter growth.On the next line, you'll see our cash cost to produce per gram came down significantly from $1.92 to $1.42. So that's down 26%. We knew this was coming. We knew that, that would result from the scale, efficiency and technology of Aurora Sky, but it's very gratifying to see. The next point you'll see is that our average net selling price per gram is actually a little bit down. It's the only one of these key performance indicators that we've marked as yellow rather than green. And so our average net selling price per gram came down about 6% over the quarter. And the reason for that, we'll go into more detail later, is essentially that we haven't had the time to scale up our -- or at least, we didn't -- early in the quarter, we hadn't had time to scale up our derivatives production. And the reason it's yellow rather than red is because we've already got indicators that, that will be turning around in this quarter.Our gross margin is up a small amount, 1%. But our gross margin on cannabis revenue is up, and we're very, very proud of that. We have always emphasized our gross margins. We will continue to do so. And then, also our active registered patients is quite notable because that was up 5% in the quarter to 77,000. And it's up another 7% to 8% since then. That's significant because some companies in the sector have been indicating that they've seen a softening demand on the medical side, we have not seen that. In fact, we've been managing it very, very carefully so that we don't add too many patients. Now we've got the production, we can continue to increase that.And then the last 2 key performance indicators I want you to focus on are kilograms produced and SG&A because they really tell the story of our pathway to profitability. We doubled our production. It's up 99% quarter-over-quarter to over 15,000 kilograms. And the other critical key performance indicator here is our SG&A, up only 1%. And this is further to the commitment that we made in January that we were shifting gears and focusing on disciplined execution and cost management to ensure that, that pathway to profitability comes to reality. So I'm happy to say that we are still tracking for positive EBITDA in this quarter. So the snapshot here before we move on to the formal comments is industry-leading production and production efficiency; industry-leading gross margins; industry-leading product quality, yield and no crop loss; industry-leading global footprint and unparalleled technology. In this phase of the sector's development, I would say absolutely that the #1 critical success factor is the ability to produce and sell an enormous volume of cannabis, and we have got that in spades.All right. And now onto the formal comments. Looking back at the first 3 quarters of our financial year, we're very pleased with the progress we've made. We've consistently executed on our growth and expansion strategy, resulting in continued revenue growth while improving efficiencies and scale to drive margin improvement. We're proud of this progress and very pleased that while many in this sector are still trying to decide how to build their cannabis business, we have already successfully built a strong and thriving business with solid fundamentals that's positioned as a global leader.Now let's look at our achievements in the third quarter. Our net revenue was $65.1 million, a 20% increase over $54.2 million in the second quarter. We produced almost 16,000 kilos of cannabis, double the volume compared to the previous quarter. With Aurora Sky ramping up very successfully, our cash cost to produce per gram fell by 26%, while SG&A costs were relatively flat over the same period due to disciplined cost management. In the quarter, Aurora continued to be a solid performer in the Canadian consumer market with leading market share and high-brand awareness. Our consumer revenue has continued to exceed our expectations. We achieved 37% growth compared to Q2.While increased production was a fundamental driver of growth, I think it's important to understand how well our products performed in terms of brand resonance. An analysis of over 6,000 reviews on lift.com (sic) [ lift.co ] conducted by a covering analyst showed how well the Aurora brands perform in this respect. 2 of the top 3 most highly regarded brands were ours, with all our brands in the top 11. While in an undersupplied market, the ability to produce remains king, longer-term, we know the brand strength will play a key role in capturing and keeping market share. And going by these numbers, we're very well positioned in the consumer market.We are also looking forward to an improved retail infrastructure across Canada, which will further increase consumer engagement. There's still many consumers that have yet to purchase their cannabis legally. Furthermore, people who do not transact in the illegal market but are interested in cannabis appear not to be engaged because of the reported shortages and the currently underdeveloped physical retail infrastructure. The launch of brick-and-mortar stores in Ontario is a great step forward in this regard. And with increasing supply, we will see a growing network of retail stores. In this respect, I'd like to mention our partner Alcanna, who recently opened another of its beautiful Nova Cannabis dispensaries at 499 Queen Street West in Toronto. Sorry for the advertisement. Not really.In general, in line with what has happened in other consumer jurisdictions, a well-developed physical retail network should result in strong growth. While we perform very well in the consumer market, medical cannabis remains the cornerstone of Aurora's identity. In the last quarter, we undertook many initiatives to strengthen our leadership position in this segment, both nationally and internationally. Some have suggested that legalization of consumer cannabis in Canada would result in a drop-off in the number of patients buying in the medical system, as people would head to stores to self-medicate. In our experience, nothing is further from the truth. Every day, the number of global physicians prescribing cannabis to address real medical issues from PTSD to palliative care is growing. Many of these patients would only seek treatment through traditional channels such as their trusted family doctor or clinic, rather than seeking advice in a dispensary. In addition, through the medical channel, patients can seek reimbursement for their expenses through tax reduction and an increasing number of companies including medical cannabis in their benefits policies.So despite the introduction of consumer legalization, we continue to experience growth in our patient numbers, up 5% this quarter to over 77,000. As of yesterday, our patient numbers in Canada have increased even further to 82,745 in line with our production acceleration toward the end of the quarter and into Q4. Additionally, 3 of our brands were included in the Shoppers Drug Mart online marketplace for medical cannabis, which opened this past January. In the quarter, we also introduced Product Identification Numbers, or PINs, to 78 of our medical cannabis products to make it easier for patients to apply for reimbursement under health insurance plans.We are recognized as a leader in medical cannabis. This is not just due to the high and consistent quality of our products provided by our 3 medical brands but also because, as an organization, we are integrated throughout the value chain to advance medical knowledge, to support physicians and other health practitioners and to service our patients with excellent products, customer care and information.To our knowledge, we have the broadest medical research program in the industry with over 40 clinical trials and medical case studies underway and completed. This creates incredible brand strength with physicians worldwide, who are still the key drivers of growth for the medical sector. We own CanvasRx, which provides critical services to both patients and physicians looking to understand medical cannabis and its uses. We engage with health authorities internationally, with physician networks and with pharmacies. It is this rigor in our medical cannabis program that has enabled us to grow our presence in the medical cannabis markets, both domestically and globally.Currently, we are present in 24 countries on 5 continents. This past February, we added to our European presence with the purchase of a 51% ownership interest in Gaia Pharm, renamed Aurora Portugal. This new division has received permission from the Portuguese Health Ministry to construct an EU GMP, European Union good manufacturing practices, compliant cannabis cultivation facility.The first phase of the facility is expected to be complete in Q3 2020 and will have a capacity of 2,000 kilograms per year with a further 2,000 kilos coming on when the second phase is completed. Another significant advancement in Europe was our win in the recent public tender competition in Germany to cultivate and distribute medical cannabis. Aurora was one of the 3 winners in the competition, which was judged based on the design, quality, security and logistics of the growing facility. Of the 79 applicants, we received the highest ranking and won the maximum number of lots in the tender. The lots will allow us to provide a minimum supply of 4,000 kilograms of medical cannabis over a 4-year period. We will start constructing this month and expect to ship cannabis from the facility starting October 2020. We are very pleased with this win, which solidifies our leadership position in Germany and reflects our industry-leading facility design. This was an important skill that we developed early on with our acquisition of the facility design business, Larssen, in 2017. While the quantities of the tender are very much smaller than what we anticipate the size of the German medical cannabis will grow to, it is a critical win that will strengthen our brand in the local market as well as throughout the rest of Europe.Another development strengthening our brand in Germany is the introduction of full-spectrum extracts. Tier 2, we established early mover advantage and are developing the market. As an aside, using the Canadian medical market as a proxy for how other international markets will develop, this provides a good indication of the scale of the opportunity we're pursuing. In Canada, we already have over 1% of the population registered in the medical system. Translating this to the international markets in which we have very strong first and early mover advantage, it is clear to see that very substantial additional capacity is needed. Hence, our upscaling of Aurora Sun in Medicine Hat and the construction of Aurora Nordic in Denmark.With scientific studies increasingly augmenting word of mouth and anecdotal evidence, we think it's fair to assume that destigmatization of cannabis and adoption by physicians will follow an accelerated curve in comparison to Canada. Work is to be done to develop these markets, obviously. And for now, they remain supply restricted, but the opportunity is there, and we are executing extremely well in this regard. In terms of our production facilities, in the third quarter, both MedReleaf Bradford and Aurora Sky in Edmonton were fully licensed by Health Canada. Bradford is now fully planted and provides a production capacity of 28,000 kilos of premium hanged, dried and hand-manicured cannabis. Aurora Sky is, we believe, the single most advanced cannabis cultivation facility in the world. The 800,000 square-foot facility has a production capacity in excess of 100,000 kilos annually.Sky, a massive closed system indoor facility with a glass roof, deployed state-of-the-art technology that produces cannabis of high and consistent quality, while benefiting from a high degree of automation to increase efficiency. This means target production cost of less than $1 per gram. Sky is now fully planted and successfully ramping up to maximum capacity. The increase in production seen in Q3 over Q2 will continue with increased product availability for sale in Q4.At Aurora Sun in Medicine Hat, our newest and most evolved Sky Class facility, construction is progressing very well with the erection of the medical -- or the metal structure and glass installation almost complete. The design of Aurora Sun includes a number of technology advances as compared even to Aurora Sky and will further improve our economic efficiencies. As I mentioned, we announced an upscaling of Aurora Sun in the quarter. The facility will now measure 1.6 million square feet. And with Sky Class efficiencies, it's targeted to produce over 230,000 kilograms per annum. Sun also represents an advance in our production process with the facility focused solely on high-efficient production with the dry cannabis shipped to other facilities for further processing.In February, we announced a new facility, Aurora Polaris, that will focus on postharvest processing. Strategically located adjacent to Aurora Sky in Edmonton, Polaris will be EU GMP compliant and serve as our center of excellence for the production of high-margin, value-added products such as edibles. Our product development team, in collaboration with our market development specialists and internal market forecasters, have identified these products -- those products that we anticipate will sell best and have the best margins. These products include edibles such as hard -- baked goods, chocolates, mints as well as vape products, cosmetics and softgels that we will produce at Polaris. Products such as infused beverages are also under development. But considering the anticipated relatively low market share of these products, we're not rushing this, as we'd rather get it right than get there fast launching a product with limited market resonance.Leveraging its proximity to the Edmonton International Airport, Polaris will also serve as a domestic and international logistics and warehousing hub. Polaris is expected to be completed by the end of this year. In the interim, in anticipation of new regulations permitting these new products, we are installing production lines at our other licensed facilities to ensure that we will exceed market demand with a broad complement of products and not have a level of shortages that the industry experienced on October 17 of last year. Polaris demonstrates the scale that we've achieved in our operations. We're not a cottage industry, but rather a pharmaceutical level in the industrialized operation that requires complex systems to drive operational efficiencies, consistent high-quality output and product innovation.You've heard today the advances that we've achieved in the consumer and the medical business both domestically and internationally. Polaris will help us institutionalize our innovation of -- and our innovation culture and maintain our global leadership.Now Glen will discuss the financial highlights of the third quarter. And over to you, Glen.

[Glen Ibbott, Chief Financial Officer]

Thank you, Cam, and good morning, everyone.Aurora's financial performance in the third quarter of fiscal 2019 reflected our continued robust execution across all market segments as Cam just described. Our net revenue increased to $65.1 million for the quarter, compared to $54.2 million in the second quarter of fiscal 2019. And just $16.1 million in the comparative period last year. Of this, cannabis revenue was $58.7 million, a 23% sequential growth across all 3 market segments but driven largely by a 37% increase in consumer market cannabis sales. Underlying this growth was the increased production that Cam discussed from Aurora Sky and our Bradford facility. Medical cannabis sales in Canada grew by 8% or $1.9 million as a result of continued growth over a patient base. As Cam indicated, we continue to support the growth of the Canadian medical market and in line with our patient-first culture have increased availability of the medication that patients need.We continue to take the position that medical cannabis, like all prescription drugs, should not be subject to excise tax. For that reason, we continue to absorb the cost of the tax for our patients. This negatively affected our revenue in the quarter by $3 million or 5%. Extracts represented about 18% of cannabis revenue in Q3 compared to 22% last quarter. Our oil extraction facilities have been operating at a maximum capacity for the past 2 quarters and as a consequence, the relative contribution from extracts fell slightly as our total revenues grew.During the quarter, we installed additional extraction capacity at some of our facilities, and that capacity is now online. Furthermore, our extraction partner, Radient Technologies, has now entered commercial operations, which we anticipate will start making a noticeable contribution from the end of Q4 onwards. Finally, installation of EnWave's rapid, low-temperature drawing technology at our Aurora Sky and Sun facilities will increase speed of extraction in future quarters, making it from a matter of weeks down to a day.The average net selling price of cannabis decreased to $6.40 in Q3. This was partially a result of product mix as recorded a 48% increase of dried cannabis sales into the consumer market, which has a lower wholesale pricing structure. The ASP was also impacted by the first full quarter of excise taxes on medical cannabis, which Aurora absorbs. And finally, and most importantly, the relative decrease in contribution to revenues from extracts impacted the average selling price as well. Going forward with significant additional extraction capacity coming online internally as well from -- as from Radient, we anticipate the relative contribution from higher selling price products to increase towards the end of the current quarter.A significant improvement in our cash cost to produce cannabis more than offset the decrease in average selling price. As Cam noted, it's a key driver of our financial performance and the cost to produce was down $0.50 from last quarter, 26%, to $1.42 per gram in Q3. The result of increased production coming out of Sky and Bradford creating significant economies of scale, and it was also a result of a reduction in the temporary labor that we had employed to prepare for the commencement of consumer sales in Canada.We expect production cost to continue to go down as Aurora Sky produces at full capacity in Q4 2019 and Q1 2020, and reiterate our expectation that production cost will be well below $1 per gram. So tying all of this together, in Q3, our consolidated gross margin was 56%, up slightly from Q2 of this year. This reflected the improvement in our cash costs, offset by lower percentage of extract sales and the increase in the consumer market sales. We expect gross margins will continue to improve as we introduce new product lines, expand our extraction capacity and increase international sales, all of that combined with our continued improvement in production efficiency.Cannabis production in the quarter increased by almost 100% to 15,590 kilograms, driven mainly by the ramp-up in production at Sky and Bradford. Much of this production increase came towards the end of the quarter. At March 31, we had WIP inventory exceeding $45 million in fair value, which reflects the significant harvests during March.A few more words on our ramp-up at Sky. In order to reach the 100,000-kilogram production capacity, 2 parameters are critical: the frequency of harvest and the yield per harvest. I'm pleased to note that frequency is nearing our target rate. Sky is reaching a real cadence in production. This means that we will comfortably reach the stated capacity of more than 100,000 kilograms per annum harvest rate in the first quarter of the new fiscal year. I should also note that the yield per harvest has actually been substantially above target. The average of the last 10 harvests there has been more than 20% above our targeted yields.With the successful ramp-up of Bradford and increasing production yields across our other facilities, we anticipate harvesting at a rate in excess of 150,000 kilograms per annum by the first quarter of our fiscal 2020. On the planted rooms' basis, our capacity already exceeds 150,000 kilograms per annum.For Q4, we expect to have over 25,000 kilograms of cannabis harvested and dried. With the implementation of new regulations permitting the sale of a broader portfolio of derivative products later this year, we are planning to allocate a sizable fraction of this production through the inventory for further processing to ensure we'll have a broad portfolio of new products in sufficient quantities available for sale when the higher-margin products will be permissible in Canada.Over the past several quarters, we have invested significantly in building out the talent and the infrastructure to lead the Canadian and international cannabis industry. Now much of that infrastructure is in place and ready to support our growth. In Q3, SG&A costs grew by 1% compared to Q2 of this year. Within SG&A, sales of marketing actually decreased 28%, as the reduction in pre-Cannabis Act spending was partially offset by higher shipping costs, which are related to our increased sales volumes and an increase in sales representatives head count.For G&A, while we saw a 16% increase, greater than 6% of this was due to the new Health Canada cost recovery fee, which is calculated at 2.3% of sales. Q3 2019 G&A also reflected the first full quarter of ICC integration and a partial quarter of Whistler costs. Going forward, we anticipate SG&A to show increases in line with the growth of the organization but certainly at a rate significantly lower than our anticipated revenue growth.In Q3 2019, our adjusted EBITDA loss decreased by 20% in the quarter to $36.6 million from the $45.5 million in Q2. I should note that we have defined adjusted EBITDA in our Q3 2019 MD&A. Through the combination of substantial revenue growth, a declining unit cost of production, increased availability of higher-margin derivative products, increased shipments to the EU and ongoing disciplined operating cost management, Aurora continues to track towards achieving positive EBITDA beginning in this current fiscal Q4 2019.Our financial position remains solid. At March 31, we had almost $350 million in accessible cash and over $70 million in accounts receivable. This compares to both $75 million in cash and $15 million of AR at June 30, 2018. The increases are largely due to draws on the BMO-led credit facilities, the issuance of senior secured notes in 2019 -- in January 2019, and the increased level of sales in our business.In addition, we recently completed the filing of a base shelf prospectus and ATM supplement, a long-term strategic measure that provides the flexibility to access growth capital, if or when required, to provide the gas to continue executing on our global expansion and partnering strategy. We implemented this base shelf prospectus and ATM supplement as part of a prudent, maturing capital structure and normal part of housecleaning as we -- about our Q3 results.In conclusion, I'm very proud of the team at Aurora. Kudos to all for delivering yet another strong quarter. We continue to pose stronger fundamentals each quarter, expect significant growth and are financially healthy. We are executing our growth strategy and consequently, I believe we are very well-positioned to further strengthen our position as a clear leader in the global cannabis industry.I'll now pass the call back to Cam.

[Cameron Battley, Chief Corporate Officer]

Thank you, Glen. And as you've heard today, we built an extremely strong platform for growth that's generating continuing solid results. We have several initiatives in place that will drive further growth and further secure our leadership globally.Now let's look at few. One exciting development has been the appointment of Nelson Peltz as our strategic adviser. Nelson has a decade-long track record of building businesses and generating exceptional shareholder value and has deep experience in the consumer products business. We are working with him on multiple initiatives, including our partnership strategy. As we communicated at the time, our partnership strategy is differentiated. We do not believe that change of control transaction at this point with so much growth still to come is in the best interest of our shareholders. Rather, we are well positioned to explore the benefits of multiple partnerships across a variety of industry verticals. Nelson's experience and his connections in these areas will prove, we believe, very valuable in this respect. We are excited about the opportunities in the cannabis and also the hemp space globally. And we continue to explore multiple opportunities with Nelson. We don't want to put a time line on things right now, but I want to stress that we are approaching this very strategically, methodically and thoroughly.One important area of attention is the U.S., which appears to be moving toward a more open legalization, particularly in the areas of industrial hemp and CBD. We are assessing where in the value chain we'll be able to generate the most value. We're well positioned to pursue multiple angles through our deep research and product development capabilities, our regulatory expertise as well as our extensive global hemp infrastructure, which we intend to expand through acquiring the shares in Hempco not already owned by Aurora. CBD for both medical and wellness applications has incredible potential. And we intend to fully leverage our capabilities, our infrastructure and our partnership potential to maximize shareholder value creation.You can also look to us to continue to build on our leadership in Europe. In addition to our entering into Portugal and our recent tender wins in Germany, we recently have been selected as the exclusive supplier to the Luxembourg Health Ministry for medical cannabis. While this is admittedly a small country, Luxembourg has demonstrated that it is an innovator in cannabis legislation within Europe. For example, it's the first country in the European Union to propose legalization -- sorry, legislation that would allow for the consumer use of cannabis. Our association with the Ministry of Health will help us be on the forefront of opportunities with them that could translate into further growth in other European countries as the market matures.As I said at the top of the call, while many in the industry are still evaluating how best to build their cannabis business, we have built a solid and rapidly growing business that is exceptionally well positioned to capitalize on the enormous global opportunities in cannabis. In fact, we built a global leader. Our fundamentals are improving rapidly. And we have the know-how, the scale, the credibility and the reach to execute.That concludes our prepared remarks. And now I'd like to ask our operator, Chris, to open the call for questions.

[Operator]

[Operator Instructions] Your first question comes from Vivien Azer with Cowen and Company.

[Vivien Nicole Azer, Managing Director and Senior Research Analyst]

So as we think about the capacity ramp and the expansion on Sun, Cam, I think it might be helpful just to revisit kind of the rationale for laying down so much capacity. Certainly in the near term, the market is clearly very tight. One of your competitors extended their view of the supply and demand imbalance last night, saying 18 to 24 months. So a 2-part question. Number one, kind of the longer-term rationale around building out all this capacity when ultimately we will go into an oversupply situation. And number two, if you could comment on your expectation for the switch to oversupply from a broader market perspective.

[Cameron Battley, Chief Corporate Officer]

Yes. Sure. So I'll start this off and then maybe hand off to both Terry and Glen. We -- looking at the -- our view of the need for capacity, first thing is that, you're right, the market is undersupplied in Canada. We're -- and we see continued strong demand. We also were not necessarily in line with some people's expectations as to what max capacity will be, particularly given the advent of the new products as per the new regulations that will be coming out this year. So there's that. Second thing is that -- and we said this before, the central fact of the global cannabis sector is a massive excess of demand oversupply. And we know that we're going to have to supply a lot of international markets with product that we cultivated in Canada. So that's why we're doing this. And also, we have a massive cost advantage here. And there are a lot of companies that are promising to have X capacity available in 12 or 18 to 24 months; we're delivering it now but we're also delivering it incredibly economically. So we're going to have massive capacity to supply the Canadian market, to supply international markets and we don't see any shortage anytime soon.Terry or Glen, did you want to weigh in and add to that?

[Terry Booth, Founder, CEO & Director]

Sure. Thanks, Cam. The -- I think I said last quarter that if there's one thing I lose sleep about is our ability to supply the global demand for cannabis. And I'll lose a little bit more sleep with my 2-week-old baby, but it is definitely something that still is at the top of our agenda, increasing our capacity to feed the globe's need. It took Canada 5 years to meet its demand with a population of 33 million. You just put that math into perspective with the EU and with Australia, Mexico and other countries that are coming online, it would take literally 50 years to meet that demand. But we're not going to take that long because of the scale we're now able to build upon. The market is moving in a very, very fast pace. You're seeing what's happening in the United States with the bank's SAFE Act, with the Farm Act, with the number of stages that are now flipping over to medical and also taking on adult usage. There's no doubt in my mind the U.S. will be legalized in the next 3 to 5 years completely, probably at a state level. So those types of demands are there. The East Coast of USA does not have the grow capacity at this point that the West Coast has. Add them all up, the demand will be significant for the product for many, many years to come.

[Vivien Nicole Azer, Managing Director and Senior Research Analyst]

That's helpful. And just to follow-up on the second part of the question, any view on when the Canadian marketplace might be able to produce enough supply to meet demand?

[Cameron Battley, Chief Corporate Officer]

I'll answer that. That's a bit of a mug's game, Vivien, I think, is putting those estimates out there. I think anybody who tells you they know when the market will be properly -- or supplied is probably pulling your leg. We've seen a lot of predictions not be correct. From our perspective, all we need to do is keep executing the way we are, and that's the way we look at it.

[Operator]

Your next question is from Chris Carey with Bank of America Merrill Lynch.

[Christopher Michael Carey, Research Analyst]

I just want to start off -- I have a near-term question and then sort of a more longer-term philosophical question. But on the near term, I think you said that you would anticipate that the 25,000 kilos that you have available for sale would actually go for value-added product forms potentially later in the year. So would you anticipate growing sequentially from a kilogram sold standpoint in fiscal Q4 rather than fiscal Q3?

[Cameron Battley, Chief Corporate Officer]

Oh, the answer's yes. I'm going to let Glen go into more detail on this. Glen?

[Glen Ibbott, Chief Financial Officer]

Yes. I think what we said -- and hopefully, I come through; I understand I'm coming through a little bit quietly on this, but we said that we would allocate a portion of that to inventory for the value-add products. Listen, what we're trying to do is learn from the challenges in the industry last year and the initial launch of consumer legalization. And we absolutely have to have sufficient inventory to launch these products properly. So if that means taking a little bit of revenue out of Q4 and putting it into inventory into new products, then that's what we'll do. But the other part of this, Chris, is we have -- that today and in the past, that we are tracking the EBITDA positive in Q4, so that does mean definitely -- you can do the math. There has to be a significant increase in our sales, in our volumes from Q3 to Q4. So we're going to trade those off and make sure that we're making the right decisions for the long-term future and the long-term value of the company to establish ourselves properly in the -- in these -- the new product portion of the consumer market in Canada, but also to meet our commitments in terms of EBITDA profitability. So you would expect to see continued significant growth on the revenue and volumes sold by -- in Q4.

[Christopher Michael Carey, Research Analyst]

Okay. Makes sense. And then kind of longer-term and somewhat connected to the prior question, so -- I guess from -- based on what you've put out there, you're going to get to roughly 400,000 kilos capacity in Canada over the next few years, potentially 40% plus minus of the total market. We'll see how things go with prevalence in new product forms. But when you think about that 400,000 kilos capacity, what -- how do you think about the evolution of the ability to use international exports as a lever, if you can't find a home for that much supply in Canada? So said another way, how quickly will some of these markets open like Europe? Because even in this quarter, kilos sold to Europe are still very small. So just how you see that evolution over time.

[Cameron Battley, Chief Corporate Officer]

Yes. Well, I mean the first thing to remember is that -- Germany, for example, where most of our international medical cannabis sales have gone thus far, that's been constrained by supply. That market's been constrained by supply. And we're just at the point -- now we're ramping up to the point where we'll have a lot more to sell into Europe. Now how quickly will these markets develop? Well, that's an interesting question. And we're actually actively involved in sharing best practices with governments around the world, so that we see truly accessible systems for patients and to help them accelerate development. I think it will happen very fast, some markets more than others. But you take a look at Germany, for example, that's a really exciting market. We talked about Canada having more than 1% of the population with a script for medical cannabis. If we assume that, that's going to happen in Europe and probably faster because most patients are getting insurance reimbursement, you're talking about very short-term to like 850,000 patients in that one country alone. So these markets are opening up so fast. I'll recall what Terry said that our biggest nightmare is we just want to produce more cannabis and be able to supply these opportunities. So that's happening. Remember that, when we emphasize we'll have about 400,000 kilograms of production in Canada, we don't see any constraints for years and years on the ability to export. And a lot of those export markets are premium priced. Europe, for example, we get the benefits of the currency differences.

[Terry Booth, Founder, CEO & Director]

Just to add to that, Cam, the German market is one thing. We know that, that's going to, real soon, start to take traction as we actually are able to send pharmaceutical reps around educating physicians and having seminars and CME courses. But countries like Australia, where Cam did a great job in working with the government in cutting some red tape, literally went from less than 500 patients last year, this time, to well over 5,000 now. So that's a country that will be importing for some time. They have no production facilities. People have to recall, cannabis had production facilities for over 15 years, if we include the MMAR program. So as these countries scale up -- we know the medicine is true, we know it, we believe in the medicine, 100% in different product forms and different means of administration and that's all coming online as this industry matures, this wave of cannabis required globally for medical purposes is significant. And getting into these countries as first-mover medically will set ourselves up excellent for any adult usage plans of any other countries.

[Cameron Battley, Chief Corporate Officer]

I also want to add to that. Something that's really important about Aurora is that from the very beginning, we've taken an approach of emphasizing purpose-built, highly economical facilities. And that's a critical part of this equation as well. There are a lot of companies that are producing or trying to produce cannabis in Canada. Not everybody is able to do so economically. We're doing so more and more so economically. So low cost and premium quality is a very neat trick to pull off; we're doing that. And I like where that positions us in the Canadian market as well on a go-forward basis.

[Operator]

Your next question is from Tamy Chen with BMO Capital.

[Tamy Chen, Analyst]

My first question is on this new potential accounting change, the IFRS 16. I'm just wondering, do you have a view on if that will have a material impact in the way you recognize your operating leases, and how that could affect the potential change on how you would report your EBITDA going forward?

[Cameron Battley, Chief Corporate Officer]

Glen?

[Glen Ibbott, Chief Financial Officer]

Yes, Tamy. Yes. Of course. I mean I'm not sure if everybody on the call is aware but under IFRS, there's a new standard coming out in next -- for us in next fiscal year, so Q1 2020, that will require essentially most leases to be capitalized and then amortized or depreciated over time. So that will effectively move some operating costs off the P&L and into depreciation. Tamy, right now, I mean, we own pretty much all of our facilities. We do have some lease cost for some land at the Edmonton International Airport. And we do have office leases, and those are likely to end up -- on as capital assets. So there will be some sort of an impact in EBITDA. I don't think it's as significant for us as it might be for some others that are leasing a lot of their facilities. So we'll see. That -- where -- that analysis is ongoing. It's a big project, as you might expect.

[Tamy Chen, Analyst]

Okay. So that -- if you would adopt, that would happen in your new fiscal year; it wouldn't happen next quarter?

[Glen Ibbott, Chief Financial Officer]

That's right, yes.

[Tamy Chen, Analyst]

Okay. Got it. And my second question is I wanted to touch again on the more near-term revenue outlook in the Canadian market. I'm just trying to understand, from what you're seeing there, is there the ability to sell through materially into the current distribution channels in Canada as long as you've got the supply? Or would you need to see a material ramp of new retail store openings across the country to absorb the level of volume that you're speaking to in the fiscal Q4 quarter?

[Cameron Battley, Chief Corporate Officer]

The current infrastructure, everybody knows, is too small. But in addition to that, there hasn't been a consistent supply. So what we've heard from some stores is -- in different parts of the country, is that regular consumers know the day that new inventory is delivered. And they all descend on those stores at that time with great big lineups. And as a result, the most in-demand products sometimes sell out in an hour or 2. What that shows is that even within the current infrastructure, there is not the consistency of supply of the most desired products yet. Now we also know that provinces are allowing for a ramp-up of bricks-and-mortar stores. That's great. It will add infrastructure. We also know that the regulations will be in place this year to allow for the new product forms. So you put that all together and we're very confident that we'll continue to pursue -- or perform exceedingly well in the consumer system. And we think that consumer system will start to pick up speed and accelerate its growth. And then also, let's not forget the medical side. We anticipate a continued demand in Canada for Aurora products and MedReleaf and CanniMed products in the medical system. The picture altogether, I think, for us is very favorable.

[Tamy Chen, Analyst]

Okay. Got it. And on that consistent supply plan, if I can just squeeze in one more, what sort of products are you seeing are the ones most in demand? And how is Aurora's product offering in comparison to that?

[Cameron Battley, Chief Corporate Officer]

Well, you heard earlier in the call that our products are exceedingly highly ranked. All of them in the top 11. So it's everything from certain kinds of dried flower -- connoisseurs really like certain flowers -- to oils as well. It's also across not just THC -- high THC, but also CBD products are very much in demand. So it's a pretty consistent picture across the board. And we anticipate that we'll see the same thing for our concentrates and edibles as well.

[Operator]

Your next question is from Brett Hundley with Seaport Global.

[Luke Michael Perda, Analyst]

This is Luke Perda on from Brett Hundley. First question, so we approach the legalization of value-added products inside Canada later this year, there seems to be an overwhelming focus on the beverage side of the market as you noted, in part given strategic partners that are in place for a number of the Canadian LPs. And it's interesting because if you look at certain parts of the legal U.S. market, beverages have lagged behind considerably relative to vapes. Part of this is because the American beverage products don't have the R&D and marketing support that we presume Canadian beverage products will have. But we're also wondering if common consumer desires are being overlooked here and whether or not the Canadian LPs and their partners are trying to force a square peg into a round hole. Can you talk a bit about your own views on how the value-added product market might develop inside Canada? And what kind of opportunity you see on the vape side?

[Cameron Battley, Chief Corporate Officer]

Yes. I'll start, and then I'd like to hear from Terry on this as well. I don't want to be too much of a negative on beverages. It's just that we've made what we think is a pretty rational decision to focus our priorities in terms of the new product forms in areas where we know that there's strong demand, in part based on the model that we've seen in the U.S. consumer legal state. And where we believe that we can deliver something that's highly differentiated and good for consumers. And also, where we think that we can generate the highest margins. Now we said before, with respect to beverages, that may turn out to be a great market segment. It's not yet in the U.S. consumer legal states. As you point out, it's something like 2% or under of the market. And there are some good products there that are well formulated. It's just that perhaps it's going to take a little bit of time and some marketing and some experience to change consumer tastes. Whereas, as you noted, vapes, vape pens are exceedingly popular and they have rapid and high uptake. So we think that, that's going to be a terrific market segment that doesn't need a lot of market development that will be pretty much ready-made. They're so discreet. You can stick them in your pocket, in your purse. They don't create smell, just a little bit of vapor. And I think that, that will be very attractive to new consumers who just want to try it out. What's all the fuss about? Let me try one of these vapes. So we're focusing on what we think will be the best sectors or market segments for us, but with the highest margin and where the demand is already clear.

[Terry Booth, Founder, CEO & Director]

The idea that -- the proven market is certainly not in beverage. And there are some big players in the United States. Heineken, for example, did have some brands in California. It's a very different effect when you drink an intoxicating cannabis beverage. It's not like alcohol. It doesn't lead to another and another. It's actually the more you have, the less you want in a very short amount of time once it starts taking its effect. It also has the potential, if it doesn't have the rapid onset that we don't think it has, to have adverse effects over time. There are not going to be any cannabis bars like there are alcohol bars any time soon. You mentioned that marketing in Canada, that's still not allowed and that won't be allowed for beverages either as far as we know. The gummies and the vapes, they're the best sellers, they're the best margins in the States. Certainly, the -- if we're leaning towards any beverage, it would be on the wellness side of the fence, which we think that there's a tremendous market potential there. But on the intoxification side of the fence with respect to cannabis drinks, the market is just not there. It's not proven to be a popular item anywhere. And it's not able to market like typical beer companies or booze companies are allowed to market. So it's small steps for us, but certainly we're going to be focused on what we feel sells best and provides the best margin.

[Luke Michael Perda, Analyst]

And just one more for me. You've gone out and you've purchased Whistler. You also have an investment in TGOD. It seems that you really believe in the forward market opportunity for organic cannabis. Do you see Aurora becoming a big player on this side of the market? And can you talk about the forward market opportunity overall in your view?

[Cameron Battley, Chief Corporate Officer]

I -- I'll start and then pass this on to Terry. We see it, obviously, as a part of the picture. And so yes, there's going to be a segment of the market of consumers and patients who prefer an organic product. It's not necessarily the be-all and end-all; organic has advantages and disadvantages. It's just another piece of the market to us. Terry?

[Terry Booth, Founder, CEO & Director]

Yes. The organic market in cannabis is a popular one as is the organic market in hemp. We have the largest organic producer of hemp under our wing now in Lithuania, Agropro and Borela. So we know that there continues to be a move towards organic products. In the cannabis phase, the Whistler has the very best, for sure, in the Canadian license producer space. And we're waiting to see how TGOD execute on growing organic at scale. It is a difficult thing to do. We wish them the best of luck. And we do still have a right to 20% of their production supply. Where you run into some problems with organic is, of course, microbial. You have to watch the dirt very, very close. It's a growing and living, breathing medium that if it gets out of control, even a little bit, you can have crop loss. Whistler have been doing it for 5 years. They've eliminated crop loss over the years, completely, and know what they're doing with respect to organic with smaller rooms. It also demands the highest price, so we serve them a tremendous job. With the provinces and maintaining, they are not going to drop their price of the cannabis. And if you don't want it, you don't have to take it. But guess what, it flies off the shelves before everything else. So that we'll watch and we'll continue to increase organic supply if indeed organics is the way to go. On the food and beverage side, on the edibles, I think that, that may be even a bigger picture for organic cannabis making organic edibles and sugar-free edibles. So lots of -- I think that the organic supply of cannabis is a very important piece to the puzzle. And it's just a matter of if we can grow it at scale or continue to grow it at a smaller scale, much like the organic vegetable market.

[Cameron Battley, Chief Corporate Officer]

Yes, I'll add to it. You've heard me say before that we like to -- on important strategic questions, we like to measure twice and cut once. So as Terry indicated, if we find if that there's an increasing appetite for organic cannabis products, we'll be there. But we don't want to overcommit to that until we see that the demand is there. So measure twice and cut once, we think it's a prudent way to operate.

[Operator]

Your next question is from Michael Lavery with Piper Jaffray.

[Michael Scott Lavery, Principal & Senior Research Analyst]

Just wanted to touch on the U.S. You expect legalization federally in a few years like roughly everybody. Can you just give us a sense of how you envision entering the market? And would I be hearing you right that you think some of your capacity you already have planned would be available for export to the U.S.? And if that's the case, what are -- what would be needed from a regulatory perspective to allow for that?

[Cameron Battley, Chief Corporate Officer]

So the first thing I want to do here is to emphasize that we are not making any news on that point today. And then I want to reiterate what we said before. We, obviously, will be in the U.S. And we'll be in the U.S. in a big way at some point in the future. It will always be in a way that is consistent with U.S. federal law. We will enter when it is permissible on a federal level in the U.S. There are some ways to enter earlier. We'll also do this in a way that is consistent with our -- with the requirements of our exchanges.But Terry, I know, wants to speak to this. Terry?

[Terry Booth, Founder, CEO & Director]

Sure. Yes. The U.S. is an interesting country to say the least with respect to cannabis. The states all have much -- different regulations, varying regulations from state to state. I feel Nevada is probably the best state for a Canadian company to enter into. The -- and the regulatory changes that are forthcoming, we don't know what they'll look like. If they don't erase the state to state line in the cannabis space once legalized, then it's a very difficult market to operate at scale in. Right now, we have -- or they have multiple state operators -- like multistate operators, MSOs, that have a small facility in their various states. Now that's not really the Aurora way of doing things. And if we do go to the states, we'll be focusing on the large population centers that are not fully established that have regulation that are -- we're able to operate in with profit. If they erase the state line, that whole picture changes. If you're able to cross those state lines, then it becomes a massive cannabis market. As far as the export into the states, again, we don't know when that will happen. We're allowed to export to a number of countries now. I don't know why we wouldn't be able to export into United States. The demand will certainly be there if indeed it's -- we're allowed to export in United States. And we look forward to our brothers down the south getting there -- getting that going sooner rather than later. The hemp industry in United States, the Farm Act, allowed for the usage of CBD derived from hemp with 0.00 THC. That's a limited market at this point as it only includes topicals, if you really want to go through the levered law of federal legislation. The FDA is looking at the indigestible CBDs in the states. And yes, I know many states already sell it. They are selling it federally legal as the states that have legal canvasser. Legal canvassers selling statewide are actually considered illegal ]. But it is something we have to figure on our -- the pulse very, very close. You have to understand, Aurora's not being blind to what's going on in the United States. Australis is doing well for a startup company, and they've done 4, 5 deals. It's our little brother. We have back end rights with Australis and more to come on that later. But it's something we feel very confident as do most will be legalized; it's how it's legalized is the question. Is it going to be legalized medically state to state? Or adult use to state to state all at once? We don't know. Nobody knows. And I don't think the government knows. So that's a ways away. It's one step at a time. And we are taking the steps necessary to do that in a -- in an organized fashion, as Cam said, measure twice, cut once.

[Michael Scott Lavery, Principal & Senior Research Analyst]

That's really helpful color. Just a follow-up, sort of the flip side of the question. To what extent do you have any of your capacity plans even sort of vaguely earmarked for the U.S.? Or you -- when you have the opportunity to export there, would you have to rethink a little bit how that gets put to use?

[Terry Booth, Founder, CEO & Director]

Yes.

[Cameron Battley, Chief Corporate Officer]

I had growth up there. Go ahead. Go ahead, Terry. Sorry.

[Terry Booth, Founder, CEO & Director]

Okay. Again, we don't know. And that's certainly not -- is not in our capacity plans at this point. We have a strategy of entering into the U.S. And that strategy is obviously confidential. But I would expect, if we have an overcapacity in Canada and the rest of the world, we would love to ship to the U.S. But I don't think we'll have that capacity depending upon the timing. The -- even if they announced they'd rather going to have a legal system, it would take years for fed rates to get the regulations in place and the proper capacity in place. And certainly, your first-mover advantage will go to your MSO, which we will look at. There's some cherry-picking to do on the MSO side of things, but there's no need to rush into it. It's going to iron itself out. We've got some over-valuations there. And I think you'll see a significant rise of valuations as they move towards legalization. But valuing these MSOs just based on the retail doors is, in my opinion, a mistake because you can always open more retail states, you can always open the door to more retail, we're seeing that in Canada. We're seeing the value of the retail stores that had got [ lottery win ] drop significantly, so we're quite happy that we didn't jump into that fray. But the -- if this doesn't -- to answer your question, we don't have any plans to export anything into United States at this point. It's not in our future just yet.

[Cameron Battley, Chief Corporate Officer]

No. I think that's the key point. If I understood you correctly, you asked if we're counting on supplying the U.S. from Canada, absolutely not. We have not built that into our plans at this point. The other thing to emphasize is once the opportunity exists to build production in the U.S. for us, we build the best cannabis production facilities in the world. I think we've clearly demonstrated that with the highest efficiency, use of automation and technology that's -- that nobody else has, thus far, been able to touch. And then the result of it is premium product at a real economical cost. So once the opportunity exists, you can expect that we're going to be looking at using our technological lead to build that capacity ourselves in countries around the world.

[Operator]

Your next question is from Graeme Kreindler with Eight Capital.Your next question is from Jason Zandberg with PI Financial.

[Jason Zandberg, Special Situations Analyst]

I wanted to drill down a little bit on your medical cannabis sales. As an industry, we're starting to see medical sales decline and that's very typical in other regions that have adopted an adult-use program that medical sales intended to trail off a little bit. You guys have actually seen a growth in your medical, although not a huge number, but nonetheless, growth. What do you attribute that to? Is it your coverage of the excise tax? Is it providing Product Identification Numbers? Can you sort of give your opinion as to why you're bucking that trend?

[Cameron Battley, Chief Corporate Officer]

Oh, yes. I mean it starts with the fact that we make great medical cannabis and everybody knows it. Listen, that -- you say that it's ticked up a little bit, and you're right. It only increased about 5% in terms of patient count in the last quarter, 8% increase in Canadian medical cannabis revenue sequentially. But let me emphasize, that's -- that was our choosing. We wanted to make sure that we had exactly the right product allocation for each of our distribution channels, Canadian medical, Canadian consumer and international medical. And so we actually could have turned on the taps and brought in a lot more patients. Now why is it? I'm not kidding when I say we produce great medical cannabis product. But we also have an extremely good reputation across all of our brands, Aurora, MedReleaf and CanniMed, among physicians. So our credibility supported by our clinical program in the medical community is outstanding. Now let's get to where medical can go in Canada. And obviously, for us, we see increased demand and increased patient counts and increased Canadian medical cannabis sales, which is great because medical cannabis patients tend to be sticky. Consumers, you never know, but with the medical patients, they're likely to stay with you as long as you keep them happy. The other thing that would be a bit of a wildcard to keep your eyes on would be the possibility that the excise tax, which as you point out, we've been absorbing for our patients, could be eliminated. I'll remind everybody that we had a press conference not that long ago in Ottawa, along with a patient advocacy group called Canadians for Fair Access to Medical Marijuana. And also on the stage with us were members of parliament from the Conservatives, the Liberals and the New Democratic party. And there is strong support in all 3 caucuses to start to treat medical cannabis the same as other prescription medicines. And if we get that excise tax and ultimately, the GST and HST removed from medical cannabis, it will be, first of all, justice, but it will also be an appropriate reason for patients to stay in the medical system. And before we stop on this point, I want to emphasize that patients who are using medical cannabis to manage the symptoms of a chronic health condition should be getting their medication by prescription. They should be getting their cannabis by prescription and consulting with their physician. Physicians and, frankly, pharmacists should know about all of the medications that patients are consuming. So there are good reasons for patients to stay patients and certainly good reasons for patients to come to Aurora.

[Jason Zandberg, Special Situations Analyst]

That's a great answer. I -- looking forward in upcoming quarters, would you expect to see that trend continue in terms of continued growth on your medical cannabis? Obviously, the direct market will continue to grow, but do you expect that to happen continually with your medical sales?

[Cameron Battley, Chief Corporate Officer]

Yes. On -- I don't want to predict the whole market, although I think it will actually be good. But for an -- on an Aurora basis, yes, we expect our patient count and our Canadian medical cannabis revenue to continue to grow.

[Terry Booth, Founder, CEO & Director]

Yes. Wait, was your question global? Or just a Canadian question? Because obviously the other 22 countries that we're operating in do not have abilities to systems and those medical systems are just starting now to blossom.

[Jason Zandberg, Special Situations Analyst]

Oh, yes. No, no. Yes, I was referring to the Canadian market. Yes.

[Terry Booth, Founder, CEO & Director]

Okay.

[Cameron Battley, Chief Corporate Officer]

Yes. And I understand the question because we've seen kind of differential results across different companies in the sector. But we've always emphasized medical cannabis. We supported that with a great clinical program. We are really, really good to our patients as customers. And so yes, we do anticipate continued growth on the Canadian medical side.

[Operator]

Your next question is from John Chu with Desjardins Capital Markets.

[John Chu, Analyst]

Maybe just a quick question on Europe and how you plan to allocate your increased production between Europe and we'll call it the value-added markets. So the way I look at it is Europe is effectively -- fairly a limited competition to direct that many EU GMP certified facility. Then you also have edibles which has a lot of competition from a lot of the smaller players here in Canada. So how would you try to prioritize it, too? And maybe just talk about what the margins you get, twins or higher? What are the...

[Cameron Battley, Chief Corporate Officer]

Sure, sure. Yes. Let me start and I know Terry will want to weigh on this as well. Let me start by telling you how much we love Europe. Europe is a market where, as you point out, there's very little competition. There's only one producer in Europe right now. And it actually is one of, I think, 8 that are EU GMP certified. And that is Bedrocan BV in the Netherlands. And of the remaining EU GMP certified facilities, we've got 2, 2 out of 7. And we're undergoing audits right now to add additional facilities. So very, very limited competition, very limited supply. It's a supply-constrained market, and we are really ramping up now to be able to supply that market. So the bigger picture here is a question of product allocation. And we've developed a very sophisticated product allocation protocol and team that we're very proud of that works on demand planning, so we know where the demand's going to be and helps us calculate where we're going to generate the highest margins. Now it's no secret that the Canadian consumer system is a lower margin channel -- distribution channel for us than Canadian medical and international medical. The margins in Germany, for example, are extremely good, in part because of currency differences but not completely. And you will see us allocating more of our product to Europe and frankly to other jurisdictions around the world, as those markets open up. And again, we're going to be a big part of that simply by removing supply constraints. So we do make a constant series of decisions on a rolling basis with respect to product allocation. Terry?

[Terry Booth, Founder, CEO & Director]

Sure. Thanks, Cam. The -- it's interesting. The product allocation team, I felt sorry for them for the last year, for sure. Because we didn't have the product to allocate. We're now definitely starting to have that product allocate and certainly in the Canadian consumer usage market, it is lower. The province has underestimated the demand. We underestimated the demand. And it continued to grow. We don't know what that demand is till it's met. The European market, we have boots on the ground now in Italy, Germany, Malta, Portugal, the U.K., the Netherlands. These are our boots underground, not small contracts or small pieces of company. We distribute cannabis ourselves in Germany. And getting that contract, only 3 LPs of the 79 applicants were awarded that contract. Obviously, the demand in that contract is going to go up. And obviously, the first movers that's -- successfully execute will have first crack at the expansion of facilities. That's when the -- they've already [ drawn ] the fall in 2020. Again, I lose sleep over being able to supply this global market. The European market is going to go nowhere but up. It's going to start not -- maybe not this quarter on a hockey stick, but we'll start shipping in bulk to Europe before too long. We're the first to sell high-value derivatives in Germany, which we're now starting to get some traction. With the doctors, we are going to educate the entire EU the best we can, with our team of physicians and PhDs and thought leaders in the cannabis space. It is a -- it's just waiting to be cracked. It's not even scratched the surface yet in Europe, yet you're seeing the increases. They still will take whatever we can give them, but we have to keep care of our medical patients here in Canada and we have to have a presence in the adult usage market in Canada. If it was a pure business decision on a mature industry 20 years down the road, we might -- at these prices, we might pull the pin on the adult usage marked in Canada 20 years from now. But we're not going to do that. It's -- we're Canadians. It's Canadian medical patients first, it's European patients second and it's the adult usage market third. But we will dominate in the adult usage market as well because of the quality of cannabis that we grow, because of the cost per gram of cannabis that we have and because of the increased capacity that we continue to bring on line. Everybody remember, we are building a Sky Class facility in Denmark as we speak. And we are growing cannabis in Denmark quite well in our Phase I of Aurora Nordic. So once we can start supplying Europe from there, it will help with our other international initiatives.

[Cameron Battley, Chief Corporate Officer]

Yes. And in terms of helping you understand another reason why we love Europe so much, if you think about it, that's a population including the U.K. of around 500 million, okay? So well larger than the U.S. But whereas in the U.S. with its kind of patchwork regulatory system, there are thousands upon thousands of producers. In Europe, there's one and us and a handful of other Canadian companies, with high barriers to entry because they believe in tight regulation. So we'll be in the U.S., obviously, as soon as that's permissible. And we're also prepared to operate in 2 very, very different markets. The U.S. and Europe appear for years and years to come to be very, very different. And so we want to be set up to succeed and win in Europe. And we're already building infrastructure for that right now. We're very, very pleased with the direction Europe's going.

[John Chu, Analyst]

Okay. Great. That's very helpful. And then just quickly, maybe just a quick update on EnWave. When do you think that's going to get integrated and can make a meaningful impact? And then same on the Radient. You received your first shipment; are you happy with what you got? And then when can we expect to see a more meaningful impact to your numbers around the efficiency and everything?

[Cameron Battley, Chief Corporate Officer]

Glen, we hadn't heard from you in a bit, do you want to address that one? Glen, you still with us?

[Glen Ibbott, Chief Financial Officer]

Yes. Can you repeat that? Sorry. Just missed it.

[Cameron Battley, Chief Corporate Officer]

We're talking about when we anticipate contribution from the integration of the EnWave technology and also Radient's demonstrating commercial capabilities. What then? And yes, we're very, very pleased with RTI. So when do we expect to see a contribution?

[Glen Ibbott, Chief Financial Officer]

Yes. As you would have seen through press release, Radient has just been recently licensed. And we've, I believe, received our first commercial batch back from them, still relatively small volumes. We expect to see that actually impacting our ability to produce derivative products towards the end of this quarter. So that's where -- we're kind of in the last 6 weeks now, so I'll say, June we'll start to see some of their product making it into our production chain. Most of that extraction goes into products that still take a little bit of time to show up on the shelves, so towards the very end of the quarter. EnWave will just shorten the drying time, allow us to speed up extraction, which in effect does kind of accelerate our capacity. That's in the -- still being implemented. So we won't see that in Q4. We'll see that in [ Q1 ].

[Terry Booth, Founder, CEO & Director]

The other point I'll add with EnWave is the -- they also reduce the risk of your -- of crop carrier or a production carrier with a very short time frame from off the plant to dry. There is risk in drying systems where molds can come in and then other bad creatures and more people are around. And when you shorten that time, it once again derisks the process of production of cannabis.

[Cameron Battley, Chief Corporate Officer]

Yes. And I do want to emphasize, we haven't had that problem but we know it exists. And what we just really talked about here -- and you've got 2 great examples. RTI and EnWave. Those are really consistent with our overall business strategy, which is to reduce all risks as much as possible and also to accelerate the entire process from cultivation through to production, getting it to market. That is consistently across-the-board our strategy. And so you've picked 2 really good ones to focus on. And they are entirely in line with our global strategy.

[Operator]

Your next question is from Doug Miehm with RBC Capital Markets.

[Douglas Miehm, Analyst]

Just with respect to how we're thinking about the Q4, I know that you've indicated that you are going to show some positive EBITDA, so really part A and B there. How important is it that you actually do that? Is it more important that you have enough product for the value at launch? Or is the thing -- what you're going to do in terms of reducing that EBITDA for Q4 the most important thing? And then part B, that is, just with respect to the recent acquisitions, so Whistler, Hempco and Chemi, are they contributing to you guys having positive EBITDA in Q4?

[Cameron Battley, Chief Corporate Officer]

I'm going to start and then hand over to Glen. So actually I would say that one of the most important things that we did when we put out that guidance in January that we were targeting positive EBITDA in the June quarter, in this current quarter, was we signaled our discipline. And it's showing. If you take a look at our revenue growth compared to our SG&A growth, SG&A being relatively flat, it's showing. We've been just focusing on that disciplined execution. So setting that target on its own has been remarkably beneficial to us, and we've been getting that feedback from institutions as well. It is important, I think, to differentiate by showing a clear path to profitability. And it's something that we've made a commitment to that differentiates us from a lot of our peers. And so it's -- it is very important to us. But the nice thing is with where our production has gone, we can kind of have our cake and eat it too. So we can continue to track towards positive EBITDA in this current quarter and have sufficient product supply to have the inventory to produce those new higher value-added products that will be allowed by regulation. It's a great, great situation to be in. And it's happening at exactly the right time for us.Now the second question that you had is with respect to the recent acquisitions and whether they are anticipated to contribute to achieving positive EBITDA, I'll defer to Glen on that, but certainly not substantially. We were tracking that way before these things. Glen?

[Glen Ibbott, Chief Financial Officer]

Yes. Thanks, Cam. So yes, just for the first part of your question, though, on the Whistler and the Chemi and those, they're not running negative, they're running positive. They'll contribute but not substantially, as Cam said. We based our EBITDA positive forecast on our core cannabis business. We do have, this quarter, about $6.5 million of revenue from other business lines that are noncore cannabis, but -- and they do contribute at least 50% or greater margin on average. So that will help, but we're really trying to drive the discipline and the growth in the core cannabis piece of this. The allocation decision, there are some really healthy debates internally, but as you would expect, a lot of this is dependent on when Health Canada is going to allow the introduction of these new products into the market. You see various signals at times from the regulators as to when LPs will actually be able to start shipping in products to the provincial distribution set. Though should that happen towards the end of the year, should we get clarity that those sales won't start towards the end of the calendar year, we may have more product allocated into revenue in Q4 and Q1. Should it be available earlier, then we'll have some decisions to make how much of that actually goes into inventory as opposed to revenue. But as Cam said, at least we've got the production now coming to make those decisions. The EBITDA piece of this is very, very important to us, not only in terms of the commitments we've made to the market, but also, there's this internal guidance as to our priorities. But we still have a focus on the long-term value that we're creating, and it's very important to launch properly into those product segments that we want to capture towards the end of the year.

[Douglas Miehm, Analyst]

Okay. That's very helpful. And then just my follow-up question. Cam, with respect to basically the capabilities that you're putting in place outside of Aurora Polaris in anticipation of the launch of the value-add products, could you just give us a little bit more detail? Because as I think about this marketplace and this -- sort of the problems that we observed in Q4 of 2018, direct launch, I just want to make sure that you guys are following the proper steps to ensure that you're going to have products. So do you have all your vape lines going in? Where are they going in? Where do they stand, licensing, that sort of stuff? And then I'm finished, that's great.

[Cameron Battley, Chief Corporate Officer]

Okay. So you asked for a little bit more detail. We can give you a little bit but not a lot. We don't want to show necessarily all our cards. But what I can tell you is that all of the capabilities for the market segments that we prioritize, it's all in place. And as Glen indicated in his comments, we wanted to be -- make sure that from an Aurora perspective anyway, we won't be seeing some of the challenges that the entire industry faced, not being ready for consumer legalization in October last year. So we have -- across multiple facilities, we've got the capabilities in place to produce those products. Polaris is going to be amazing. It will be world-class. And I think there will be nothing like it once it's opened up, but we do not need to wait for it to be online for us to deliver those product forms.

[Operator]

Your next question comes from Rob Wertheimer with Melius Research.

[Robert Cameron Wertheimer]

Your production ramp has been impressive so far with no real material hiccups and stumbles and so forth. And the question is a little bit if you can give us any more background on just how you do it. But other people in the industry have had crop failures, so how do this -- the product hasn't grown quite as well as yours. And so how do you evaluate the risk of that? Do you see the issues pop up, and you quickly mitigate them and fix them so there's no risk of a larger issue? Or do you not have the issues pop up because of more automation, because of more -- anyway, I wonder if you could just expand on that a bit.

[Cameron Battley, Chief Corporate Officer]

Yes. No, I really want to speak to this. And I'm going to start by making Terry blush because the first and greatest credit for this is Terry's vision. Terry went in a different direction from every other founder and CEO in this sector when he decided that cannabis production should be purpose-built. So north of Calgary, our mountain facility, that's the first purpose-built cannabis production facility in the world to our knowledge. And what that does is it gives you GMP -- by the way, GMP standard, everything from the cultivation rooms to the airflow inside and the ability to manage the -- all of the environmental variables, the lighting, the temperature, the humidity, the CO2, the nutrients. And every other peer of ours that is producing at mass scale has done something different, again, as we've all scaled up, whereas we've gone with these massive indoor facilities with a glass roof, the Sky Class facilities. All of our peers producing at mass scale are doing it in retrofitted greenhouses. And you can argue there are advantages and disadvantages to each approach. We really like our approach because, as you heard me say earlier, at this phase in the sector's development, the #1 critical success factor is the ability to consistently produce and move and sell a large amount of cannabis. And our entire business strategy is set up to do exactly that. So you control the environment. That reduces the risk of pathogens and pests and therefore, crop loss. And touch wood, we've never had a crop loss, and I hope we never do.Terry, you probably want to weigh in on this because you're the idea here.

[Terry Booth, Founder, CEO & Director]

I do want to weigh in. You nailed it on the head. And to most respects -- with respect to environmental control, CO2, micromoles, humidity, temperature, all those factor in and you have to stay within a certain band or you will lose control of your facilities. One thing affects the other. With a typical greenhouse, you have environmental risk with the roofs opening to cool them down. The -- you have risks with the variable temperatures, whether it be raining or snowing or hot and sunny. So environmental control is a short phrase, but it's a very, very difficult thing to do right. Secondly, you mentioned automation. And you nailed it on the head a bit there because automation takes the human being out of the picture with direct contact to the plant. That is one of your highest risks of disease are the human beings. And then the last one is GMP. And GMP is the direction of the -- really, essentially, it's the direction of the product flow. You never go backwards. You never go from a dirty room to a clean room. It is a -- it's a flow process. It's a pharmaceutical process. It's highly recognized throughout the world in the pharma industry. And those 3 factors along with 40 PhDs and the top QA team in the world and some very experienced horticulturists and growers equate to no crop loss.

[Cameron Battley, Chief Corporate Officer]

And by the way, I got to add this before we wrap up, and I know we only have a couple of minutes left. We truly believe that we've invented 21st century cannabis cultivation. And we also believe, and this is central to our business strategy, that you have to do that if you want to build a global enterprise. You've got to have that consistency. You've got to mitigate risk. You've got to do it economically. And it's got to be scalable and replicable on a global basis. That's what we set out to do from the beginning. And now at Aurora Sky, we think that we validated that Sky Class concept to do exactly what we've been planning to do from the beginning.

[Operator]

This concludes the Q&A portion of today's call. I will now turn things back over to you, Cam Battley, for any closing remarks.

[Cameron Battley, Chief Corporate Officer]

Yes. I just want to thank everybody for joining us for the call. And obviously, we're really looking forward to the next one as well for our year-end. So take care. And everybody, have a great rest of the day.

[Operator]

This concludes today's conference call. You may now disconnect.