Canada’s second-biggest marijuana producer Aurora Cannabis Inc. has agreed to buy smaller rival CanniMed Therapeutics Inc. for C$1.1 billion ($852 million), creating the globe’s largest weed producer by market value.
The deal follows months of tensions between the companies after Aurora made a hostile bid capped at C$24 per share for CanniMed, which itself was engaged in a friendly deal to buy Newstrike Resources Ltd.
The deal marked the world’s biggest marijuana industry transaction and topped a merger frenzy among cannabis companies ahead of Canada’s legalization of recreational use of marijuana by mid-2018.
By buying CanniMed, Aurora is seeking to bolster its capacity to meet domestic demand and increase distribution around the world as more countries approve the use of medical marijuana.
“The action is where the medical cannabis export markets are, which are much larger than Canada,” said Chris Damas, editor of the BCMI Cannabis Report. “CanniMed has patents, they have relationships with different universities, research and clinical trials, and export relations with other countries, and Aurora wants to add to their own relationships in Europe.”
POT STOCKS SURGE
Canada is set to become the first Group of Seven country to allow recreational use of marijuana nationwide and only the second in the world after Uruguay.
Canadian cannabis stocks have been on a tear in anticipation of the surge in demand, which changed the pecking order of the country’s biggest listed companies by market value. Aurora’s shares have soared 423 percent over the past three months, while CanniMed’s are up 268 percent.
Following the announcement, CanniMed shares jumped as much as 23 percent, and were trading up 16.8 percent at C$43.80 at 1044 EST (1545 GMT). Aurora shares rose 2.1 percent to C$15.10. Newstrike dropped 21 percent to C$1.44, extending Tuesday’s 17 percent slide after CanniMed scrapped its initial plan to buy Newstrike.
The soaring prices have prompted fears of a cannabis bubble and predictions for corrections from many market commentators, but the sector has so far shrugged off speed bumps to continue on its relentless upward path.
The Aurora-CanniMed deal would give the combined entity a market value of C$7.8 billion, overtaking Canopy Growth Corp’s C$6.9 billion, to make it the world’s biggest marijuana company by market value. Canopy shares fell 1.8 percent to C$35.99 in their third session of losses.
The combined entity’s market value would also top some of the older and well-established Canadian companies, including Bombardier Inc., which is valued at C$7.1 billion.
Still, Canopy retains its leading position in terms of production capabilities, with capacity at existing and planned facilities exceeding those of both Aurora and CanniMed.
Even so, “if I were Canopy, I’d be concerned,” Damas said. “The bigger Aurora gets, the more competition (Canopy is) going to face in both Canada and overseas.”
Aurora’s revised offer for CanniMed, 3.4 of its shares for each CanniMed security, equates to C$43.00 based on an implied share price for Aurora of C$12.65, a 15 percent premium to CanniMed’s closing price on Tuesday.
CanniMed shareholders can choose a combination of stocks and cash, although the maximum cash available will be C$140 million, the companies said in a statement.