Aurora Cannabis Expands Requirements for 3rd REV Machine Purchase – Adding Strong Revenue Potential for EnWave Corp

The milestone relationship that EnWave Corporation (CA:ENW – $2.38 & US:NWVCF – $1.83 & GER:E4U – €1.61) has established with Aurora Cannabis Inc. intensified some more the past week.

EnWave reported that Aurora has expanded the scope of requirements for its potential purchase of a third 120kW Radiant Energy Vacuum (REV) machine. Recall that back in April 2019, Aurora placed a purchase order for two of EnWave’s 120kW REV systems destined for Canadian operations, as well as the intention to purchase within sixty days a third 120kW REV machine for its Aurora Nordic facility in Denmark.

Because Aurora plans to develop a pharmaceutical-level Good Manufacturing Practices (GMP) facility in Denmark, EnWave’s REV machine also has to achieve compliance with GMP. This obviously requires certain technical upgrades and modifications to the REV unit.

EnWave has already demonstrated that it has the capacity to deliver these modifications to achieve compliance with the GMP standards after a similar procedure was requested by Merck last year. The upgrades are expected to add between $2 – 3 million to the cost of the unit. EnWave management anticipates that Aurora will accept this modification budget and follow through with the purchase for installation in Denmark.

Good Manufacturing Practices (GMP) are the practices required in order to conform to guidelines for manufacture and sale of food, drug products, and active pharmaceutical products. These guidelines provide minimum requirements that a pharmaceutical or food products manufacturer must meet to assure that the products are of high quality and don’t pose any risk to the consumer or public. Good manufacturing practices, along with good laboratory practices and good clinical practices, are overseen by regulatory agencies in the United States, Canada, Europe, China, and other countries.

Volatile Trading Action Defies Fundamentals

The latter part of June has represented a test of commitment for some investors. A consolidation is now underway after the strong gains in share price posted through the first half of the year. This is normal market action and considered healthy for longer term sustainable gains. There are no fundamental changes to the operations of the Company to warrant significant selling. Management of EnWave believes that the future remains incredibly positive.

What could have caused the short selloff from $2.65 to $2.14 between June 21st and June 26th is a party with a short position that is taking advantage of some market weakness to drive the price down so it can cover its short position.

In addition, the approaching end of quarter often creates a window for insider sales. Selling from insiders is restricted during blackout periods timed with earnings reports. Therefore some of the EnWave insiders opted to monetize some of their personal holdings prior to the blackout period. Sales were reported by Brent Charleton, John Budreski and Daniel Henriques, during the interval from June 10th to 17th. It is worth noting that as a smaller company, EnWave does not issue exorbitant compensation for its management. The decision for insiders to realize profits from share transactions is similar to all other investors. However, it is important to note that these insider sales could not have caused the decline as they took place before the selloff.

Conclusion

One of the defining elements to the strength of the relationship between EnWave and Aurora is the drive for both partners to establish a leadership role in their sectors. This has been demonstrated by several initiatives currently in process. The latest strategy decision by Aurora to achieve GMP standards is yet another example.

Aurora is expected to approve the proposed upgrade package to the new specifications and submit the purchase order. The revised product sale will then contribute yet another boost to EnWave’s growing revenue total for the year. Moreover, Aurora aspires to become the dominant player in the cannabis sector. Through the royalty agreement with Aurora, EnWave is positioned to prosper in tandem.

Meanwhile, despite the improved fundamental backdrop for the Company this quarter, the stock has entered a consolidation phase. In effect, this makes for a stronger value proposition for investors to buy at this lower price range. EnWave shows no signs of slowing down with active growth in the pipeline. The Company continues to make inroads to secure new contracts and build new partnerships.

EnWave remains one of the best small cap Canadian stocks to invest in. The market performance through the first half of the year has been impressive. The Company appears to be on track to deliver considerable gains in the future as the relationships with important partners in several different sectors continue to build momentum.

For important disclosures, please read our disclaimer.

Latest Company Report (pdf)