There’s so much to like about the small but major procurement, licensing and strategic partnership deal that Aurora Cannabis (TSX:ACB)(NYSE:ACB) announced with a growing patented technology player EnWave Corp (TSXV:ENW) on Friday, April 26.
The latest deal could significantly improve operating efficiency, reduce working capital requirements, and allow bulk drying of cannabis materials at a fraction of the time while offering the marijuana firm a partnership and a chance to share in royalty payments from other licensees within large territories, yet on a small investment of just $10 million.
The deal
Aurora has acquired a sub-license to use EnWave’s patented Radiant Energy Vacuum (REV™) drying technology on two sites in Canada, and has entered into a royalty bearing licensing agreement granting it exclusive rights to the technology in Europe (excluding Portugal).
The company has secured options to exclusively license the ground-breaking technology in Australia and in South America (excluding Peru), giving it rights to sub-license the tech in the exclusive territories and share in the royalty payments, and will partner the technology vendor in tweaking the technology for the marijuana industry.
Why does the technology tick?
EnWave’s patented microwave based drying technology is claimed to shorten drying time from between five to seven days to just under an hour!
Time is money.
Not only are the drying time savings impressive, but the technology also frees up a significant amount of working capital, frees up a lot of space in existing production facilities, accelerates the time to market from harvest and most importantly, allows for large scale, bulk drying of cannabis and CBD rich hemp biomass while reducing the risk of mould growth and contamination.
Why are Canada, Peru and Portugal territories non-exclusive?
Another industry giant Tilray has already secured exclusive licensing rights to the drying technology, first in 2017 for Canada, and in 2018 for Portugal as the company procured two sets of 60kW REV™ drying machines for its Canada and Portugal facilities.
Although not mentioned in the media release, Tilray will most likely get a portion of the royalties paid to the tech vendor on material dried within Canada, just like in an earlier sub-licensing deal with The Green Organic Dutchman (TGOD), which acquired a 60kW REV™ machine in January this year.
Interestingly, Aurora is acquiring two 120 kW machines, each of which is double the size for both that of Tilray and TGOD orders in Canada. The company was evidently beaten to the technology by Tilray, otherwise it could have obtained exclusive rights to the local territory too.
Exclusive rights to the REV™ technology in Peru are held by a privately run, Spain headquartered Fresh Business Consulting S.L. which acquired the technology recently in April 2019 for its Peru fresh fruits and vegetables operations.
Strategic partnership and equity investment
The deal also includes a strategic intellectual property agreement and partnership to jointly develop some new innovations relating to the REV™ technology for the marijuana industry where the economic benefits will be shared between the two.
The firm will also have a share in royalties due to the sublicensing of the technology vendor’s patent portfolio to corporations in territories where it holds exclusive licenses.
The company has acquired a 4.91% equity stake in EnWave, on a non-diluted basis, for $10 million paid entirely in stock. The marijuana firm’s one billion plus share count increases by a little over 840 million more units, but the dilution is not that significant yet the economic benefits over time may be material.
EnWave doesn’t expect to hold the shares and plans to liquidate the position “as soon as possible.”
Should onvestors expect more of similar deals?
The latest technology partnership deal is substantially similar to an earlier Radient Technologies deal where the firm stands to significantly beat the competition to extraction timelines and productive efficiency while granting the company rights to participate in potential royalties thorough licensing the technologies to other industry players.
The licensed technologies significantly reduce production timelines, improve output quality, and reduces manufacturing overheads per unit of production allowing the company to become a competitive low cost producer of marijuana and CBD products in a nascent mass market where margins may be suppressed as supply ramps up globally.
I would look forward to more of such efficiency boosting moves and some new product and market alliances as the company gets transformed.
