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Why the Aurora Cannabis (TSX:ACB) UFC Partnership Is a Huge Deal

It’s been a tough few months for Aurora Cannabis (TSX:ACB)(NYSE:ACB) investors. After reaching a peak closing price of $13.26 in April, the stock has been on a gradual but noticeable downtrend, following an earnings report that showed high growth but missed analyst expectations. Although the company’s sales jumped 20% quarter over quarter, its net loss was $150 million, showing the company is still a ways off from profitability.

Not all news out of Aurora lately has been bad, however. In addition to growing its sales, the company has been working on acquisitions and partnerships to diversify its product offerings. One of the company’s most interesting partnerships is with the UFC, a mixed-martial-arts (MMA) league whose athletes are well known for endorsing sporting supplements. The deal in question is purported to be a research collaboration, where Aurora and the UFC’s sports performance team will work together to see whether cannabis oil has any benefit to MMA fighters. However, the potential for new performance-enhancing products is not the only benefit that could come from this.

Visibility

One obvious benefit that could come from Aurora’s UFC partnership is visibility. In a crowded market, having a recognizable brand helps you stand out, and if the success of Nike teaches us anything, it’s that hitching yourself to athletics can help with that. Although Aurora’s partnership with the UFC is presently focused on research, it’s possible that a number of branding benefits could come as a result, such as Aurora having its name mentioned on air during UFC shows or branded Aurora products having UFC fighter endorsements.

Research outcomes

Of course, the intended outcome of the Aurora-UFC partnership is to find applications for cannabis oil in sports medicine. Preliminary research has shown that CBD may be cardioprotective, meaning it helps strengthen the heart, and should this be proven conclusively, it would have obvious implications for sports medicine.

Other areas where CBD oil is being researched include depression and anxiety, two conditions that may have a bearing on athletic performance as well. Assuming that Aurora’s research with the UFC sports medicine team is conclusive, it could result in patent-protected products that take off in the world of sports health.

Focus on high-margin product categories

One major benefit of Aurora’s research with the UFC is that it is focused on high-margin products. For cannabis growers, two product areas are most profitable: cannabis oil and pre-rolled joints. By contrast, raw cannabis flower is comparatively cheap and low margin. Since Aurora’s partnership with the UFC is focused on cannabis/CBD oil, any resultant products would be sold in one of the higher-margin cannabis market segments and could prove profitable for Aurora if they take off. This could be a major boon to the company, which is struggling to achieve consistent profits despite soaring revenue.

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Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of Nike.

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