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The Aurora booth is photographed at the O'Cannabiz Conference & Expo in Toronto on Friday, June 8, 2018. (Christopher Katsarov for The Globe and Mail)

Christopher Katsarov/Globe and Mail

Part of cannabis and small business and retail

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Supplies of legal marijuana will remain tight for many months, executives at one of the country’s largest cannabis companies say, as growers scramble to produce enough to meet the demand from patients and recreational users.

Aurora Cannabis Inc. said demand from government buyers, who control the wholesale market in legal recreational cannabis in most provinces, is enough to absorb all of the company’s pot production until next summer. A shortfall in product since legalization on Oct. 17 has closed retail stores in Quebec and other provinces, and some medical users cannot get timely access to strains of cannabis and oils they need.

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"I think [the provinces] are taking whatever product they can get from whatever producer,” said Cam Battley, chief corporate officer at Aurora.

Like most producers, Aurora is wrestling with how to allocate its supply between recreational buyers and medical users, chief executive officer Terry Booth said.

“We can sell every gram we produce up until June, every single gram up until June if we wanted to, into the adult-usage [recreational] market,” he said on a conference call with analysts. “We’re tempering it, we’re meeting our commitments and when we have extra supply ... we will allow that for sale in the adult-usage market.

"Remember that the medical market and the European market fetch us more dough.”

The Edmonton-headquartered company released its first-quarter earnings on Monday, which showed an operating loss of $112-million in the period that ended Sept. 30 on $29.7-million in revenue. Yet it posted earnings of $104-million, largely due to gains on investments in two other cannabis firms.

It booked $553,000 in revenue on Canadian recreational product delivered to provincial wholesalers in the quarter, which ended two weeks before legalization on Oct. 17. But it also had to spend heavily on sales and marketing, and took on administrative costs related to its acquisition of MedReleaf Corp., which closed during the quarter.

Tamy Chen and Peter Sklar, analysts in Bank of Montreal’s capital markets unit, said in a report that “there is significant uncertainty” over how quickly large cannabis producers will be able to increase their production and recreational sales. The analysts moved their estimate of where Aurora’s stock price will be in a year from $13 to $11; the stock closed at $9.20, down 1.71 per cent.

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On its first-quarter earnings call on Monday, the company said its brands have captured 30 per cent of online sales since legalization day at the Ontario Cannabis Store, the provincially controlled e-commerce site for cannabis. Amanda Winton, a spokeswoman for the OCS, would not confirm, saying the OCS isn’t releasing that level of detail about sales.

The OCS, which is the only way to buy non-medical marijuana in the province legally, has been struggling to cope with heavy demand, resulting in delays filling orders as long as weeks. On Monday, Finance Minister Vic Fedeli said the OCS is returning to its original delivery time of one to three days. The store has received more than 220,000 orders since the launch.

In British Columbia, four of the top five best-selling strains on the government-run online shop since Oct. 17 are made by Aurora or MedReleaf, according to a filter on the website.

As a result of legalization, the business models of most Canadian growers are evolving from selling directly to patients through online stores to selling recreational product in bulk to wholesalers.

Aurora sells its recreational cannabis for an average wholesale price of $5.50 a gram, chief financial officer Glen Ibbott said. Its medical sales in Canada have a much higher average price: $8.39 per gram for flower and $12.12 per gram for extracts, including cannabis oils. Extracts accounted for just over 30 per cent of Aurora’s sales this summer.

In early October, at least four provincial retailers warned that producers were delivering less than expected, resulting in less variety and inventory. “The story there is an excess of demand over supply," added Mr. Battley.

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“... We are not leaving our medical patients twisting in the wind. We’re making sure that they have access to the medical products they need.”

Two weeks ago, Aurora’s medical business was out of a popular type of oil used for chronic pain, epilepsy, anxiety and arthritis. Now the item is in stock, but MedReleaf is sold out of several oils and soft-gels. It also had limited selection of strains available a few weeks ago because it had to update its labels and packaging to comply with the Cannabis Act.

The company’s $104-million in earnings are due to a $144-million gain on its shares of The Green Organic Dutchman Holdings Ltd. and an unrealized gain on other financial holdings, largely related to the spin-out of Aurora’s U.S.-based cannabis assets into a new firm, Australis Capital Inc.

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