Aurora to buy MedReleaf for $3.2 billion in largest cannabis deal to date

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As the world carefully watches the morphogenesis of the soon-to-be legal Canadian weed industry, is seems every day is host to a new merger, acquisition, or partnership. Today, the headlines bloomed with the news of a drug deal to end all drug deals (or at least for now).

This morning (May 14), Aurora Cannabis Inc. published a statement announcing a $3.2-billion all-stock deal to acquire rival MedReleaf Corporation, effectively merging two of Canada’s largest cannabis licensed producers into a leviathan worth around $7 billion. The offer values each MedReleaf share at $29.44, just over 18 percent above the Friday closing price of $24.90.

If successful, the friendly acquisition places Aurora, one of the fastest growing companies in the sector, ahead of Canopy Growth Corporation, which previous held the title for the country’s largest cannabis producer.

"This deal checks every box," said Aurora's chief executive Terry Booth at a joint press conference in Toronto this morning.

"We're leaders in every box now, and we're not looking back and we're not going to stop here."

Dwarfing its own record-setting purchase of Saskatoon-based licensed producer CannaMed Therapeutics for $1.1 million just months ago, the deal also sets Aurora on the path of becoming the largest legal cannabis producer in the world. From their combined 11 facilities, nine of which are located in Canada and two in Denmark, around 570,000 kilograms of product is expected per year.

The unparalleled production capacity would facilitate large-scale global expansion with distribution capabilities and supply and licensing agreements in countries such as Germany, Italy, Brazil and Australia.

The company’s priority, however, will remain on providing high-quality product to Canadian medical patients above recreational or international demand, Aurora’s chief corporate officer Cam Battley told the Edmonton Star.

If the deal, which is subject to shareholder, regulatory and court approval, goes through, current Aurora shareholders would hold approximately 61 percent of the entire company leaving the remaining 39 percent to MedReleaf shareholders. 

All-stock deals are naturally dilutive to current shareholders, simply because they're now forced to split profits, but MedReleaf provides several attractive opportunities for Aurora.

With the country’s first ISO 9001 and ICH-GMP (internationally accepted quality control and pharmaceutical grade standards)-certified cannabis facilities, MedReleaf is a leader in medical cannabis expertise, and claimed several prestigious awards at last year’s Canadian Cannabis Awards, including top licensed producer. 

MedReleaf's introduction of new brands to the marketplace has also helped define the company as an early-stage recreational player, including the creation of San Rafael ’71, their first adult-use recreational brand, and wellness-focused AltaVie. It established an early foothold in the nascent "cannabis-inspired" beverage and edibles industry in teaming up with Amsterdam Breweries to develop a 4:20 Pale Ale and AltaVie to produce Cannabis Crunch (a snack bar)—both of which are currently in the marketplace and are cannabis-free.

The acquisition means Aurora will have access to high quality medical cannabis and MedReleaf shareholders will get a healthy premium riding the wave of consolidation, but will inevitably place a great deal of pressure on the rest of the current players to produce high quality product to compete in the global marketplace.

Canopy Growth, which, if the deal goes through, will become a second place contender, isn’t shying away from the fight, announcing plans today to list shares on the New York Stock Exchange and the intent to buy the outstanding 33 percent stake of BC Tweed Joint Venture Inc. not yet owned by the company.

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