Canadian Cannabis Colossus Aurora Buys Rival MedReleaf

Aurora Cannabis became the world’s biggest cannabis producer in mid-May 2018with the acquisition of its former competitor, MedReleaf Corp., merging Canada’s two largest and most prominent producers.  

In the acquisition, Aurora bought all of MedReleaf’s common shares for 3.2 billion Canadian dollars, or $2.48 billion US dollars as of the exchange rate Friday, May 18, 2018, leaving Aurora shareholders with control of 61 percent of the resulting company.

The deal gives the new company the capacity to produce 1.2 million pounds, or more than 544,300 kilograms, of cannabis per year.

“Not only will we have sufficient product to service the Canadian market, we’re going to have enough to greatly expand our global sales,” Aurora’s CEO, Cam Battley, told the Toronto Star.

Neil Closner, CEO and co-founder of MedReleaf, which specializes in medical cannabis, said the idea of combining the two companies was to “leverage each other’s strengths.”

Aurora’s main strengths include its automated greenhouses and low production costs. Its tons of fresh cannabis are already spoken for as orders flow in from home and abroad.

Aurora recently signed a national distribution deal with Toronto-based pharmacy chain Shoppers Drug Mart Corp. In early May 2018, they established a distribution agreement with Edmonton, Alberta-based Liquor Stores NA, which owns Canada’s Liquor Depot chain, and changed its name to Alcanna to mark the  combination of alcohol and cannabis.

The newly merged company will have a presence on five continents, with distribution capabilities and supply and licensing agreements around the world.

Although repeated attempts by to contact Aurora’s representatives were unsuccessful, Battley told the Ottawa Citizen that Canadian medical patients will be the company’s first priority, ahead of recreational and international markets.

Ben Smith of the Midas Letter told that there is always a downside in such mergers.

“The downside is largely dilution for ACB [Aurora Cannabis] shareholders, which tends to drag on short/intermediate term stock performance. That’s what we’ve seen since the merger,” he said.

While Canada exports cannabis to multiple countries, the United States can only sit by and watch.

A recent report from New Frontier Data, an independent research firm, noted that the significant head start Canadian companies enjoy has already given them a huge advantage in the global market. Their endeavors also provide a safe haven for investors.

While US banks are prohibited from handlingcannabis industry money, some of Canada’s banking giants are getting fully involved. Case in point: BMO Capital Markets was the exclusive adviser to Aurora in its bid to acquire MedReleaf.

Investments have allowed Canadian companies to build cannabis operations that dwarf those in the US in size and production capacity. There are currently 59 cannabis companies listed on the Canadian stock exchange, according to the New Frontier report.

Battely told the Ottawa Citizen that globally there is a massive excess of demand over supply for medical cannabis and Canadian companies have little competition in supplying it.

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