THE GIANT WEED WAR
Battle for biggest producer
Who’s the largest pot producer of them all?
Canopy Growth Corp., the company headquartered in an old chocolate factory in Smiths Falls, had its perch at the top of the global cannabis trade shaken on Monday by two rivals who merged to form a formidable new competitor.
Aurora Cannabis swallowed up MedReleaf Corp. in an all-share stock transaction valued at a cool $3.2 billion.
It’s the largest pot deal ever as the fast-growing Canadian industry continues to consolidate into fewer, larger companies.
Until now, Canopy was widely considered the largest cannabis company in the world.
On Monday officials at Aurora were laying claim to the title, sending out a press release heralding the creation of “the pre-eminent global cannabis company.”
That’s certainly what it looks like based on the market value of the shares.
Canopy’s market value was $6.5 billion at the end of the day Monday.
Aurora’s valuation was $4.45 billion and MedReleaf ’s $2.55 billion, creating a combined value of around $7 billion.
Not so fast, says Canopy. “What’s the biggest company?” said Canopy spokesperson Jordan Sinclair in an interview from Smiths Falls, when asked to weigh in. “The one I’m standing in. Canopy Growth, by far and away.”
Market values fluctuate, as anyone who has watched volatile marijuana stocks over the past year well knows.
Both Canopy and Aurora/ MedReleaf have multiple production facilities across Canada and are rapidly expanding to get ready for the legalization of recreational marijuana expected this summer.
Both also sell their products overseas, have production, distribution and investment deals on multiple continents, and plan to build global empires.
Beyond that, the comparison depends largely on which measuring stick is employed.
“It’s like anything else,” says Sinclair. “Who’s the best hockey player in the world? That’s why there are 12 trophies handed out at the end of the season.”
Aurora’s chief corporate officer, Cam Battley, said the merger with MedReleaf was made because the two companies were a good fit: both stress high-technology, high quality and low production costs.
Aurora is a relative newcomer to the cannabis industry, only selling its first gram of cannabis in January 2016. MedReleaf is one of the original companies to gain a licence from Health Canada to sell cannabis to medical patients in 2014.
“We’ve been playing catch-up in this business,” said Battley.
The acquisition will help Aurora achieve its goal of creating a global business comparable to the world’s largest breweries, he said.
“I’m really excited. We are creating a whole new global industry and that’s what this is all about. We didn’t enter into this agreement to be No. 1,” Battley added, calling that a “byproduct.”
But Battley maintains that the Aurora deal will indeed create the world’s largest cannabis company by market capitalization, revenue and “funded production capacity” — money the companies have available for production.
The combined revenue of Aurora, MedReleaf and CanniMed (a company Aurora bought earlier this year) was about $31 million in the last quarter reported, said Battley.
Canopy’s revenue in its last reported quarter was $21.7 million.
The post-merger Aurora will have the funded capacity to produce 570,000 kilograms of cannabis a year, Battley said, at nine facilities in Canada and two in Denmark.
To put that in perspective, a report by CIBC this month estimated that Canadian consumption of cannabis will reach 800,000 kilograms annually by 2020. Over at Canopy, Sinclair raises his eyebrows at the idea of funded production capacity as a good measurement, calling it a “distraction.”
“There isn’t a cannabis company in Canada that hasn’t had unfettered access to equity financing over the last year. It’s not a challenge to get funding, to have money in the bank. We could call a bank tomorrow and say, ‘We would like to have $400 million, please.’ ”
What matters more is what companies are actually producing, Sinclair said.
“Measure where people are today in the race, rather than where they say they will be in two years. Actions speak louder than words.”
Canopy has a proven track record, he said. The company has 2.4 million square feet of licensed production space across the country.
“And we’ll see where we are at on Friday,” Sinclair added in reference to Health Canada’s predilection for announcing new licences on Fridays. Canopy has plans to build another 5.6 million square feet of space, he said.
But even the question of who grows more cannabis is not as straightforward as it might seem.
Counting up square feet of production space is misleading, said Battley. “You could have a large greenhouse, and produce a small volume of cannabis.”
And measuring only dried flower also doesn’t tell the whole story, since an increasing share of the market is consumers buying cannabis infused oils.
Who’s the best hockey player in the world? That’s why there are 12 trophies handed out at the end of the season.