WEEDING OUT COMPETITION

Aurora Cannabis’ $3.2-billion offer to take over MedReleaf would create a ‘world leader’ in pot,

Aurora Cannabis Inc.’s $3.2 billion allstock offer to take over rival licensed marijuana producer MedReleaf will create what the target company’s CEO described as the “undisputed world leader in cannabis” and the largest-ever deal in Canada’s burgeoning cannabis industry.

If approved, the deal announced Monday will create a cannabis behemoth capable of producing more than 570,000 kilograms of marijuana per year, a significant portion of projected demand as the country moves to legalize recreational pot in the coming months.

The companies’ combined production capacity totals more than two-thirds of the roughly 800,000 kilogram annual domestic cannabis demand in 2019, as estimated by CIBC analysts in a report earlier this month.

However, the acquisition of MedReleaf is about more than just the Canadian market — it is a global play to scale up and capitalize on the larger international medical marijuana opportunity, said Aurora’s chief executive Terry Booth.

“This deal checks every box,” Booth said at a press conference in Toronto discussing the transaction. “We’re leaders in every box now, and we’re not looking back and we’re not going to stop here.”

Neil Closner, the chief executive of Markham-based MedReleaf, said the deal gives its shareholders an immediate premium and an opportunity for upside.

The offer implies a price of $29.44 per MedReleaf common share, 18 per cent above its Friday closing price of $24.90.

“This combination makes the two of us now the undisputed world leader of cannabis,” he said at the joint press conference. Edmonton-based Aurora and MedReleaf had confirmed on May 3 they were in discussions but had no agreement at the time. After the announcement Monday, shares of MedReleaf were up as much as seven per cent on the Toronto Stock Exchange in morning trading but, by mid-afternoon, were up roughly one per cent at $25.18. Shares of Aurora rose by nearly three per cent on Monday morn- ing, but by mid-afternoon its stock was down by roughly two per cent to $7.89 in Toronto.

Vahan Ajamian, an analyst with Beacon Securities, said this was the biggest deal in the Canadian cannabis sector yet and could push other rivals to beef up their presence.

“MedReleaf’s shareholders will be getting a healthy premium,” he said in a note. “We believe this development will spark (merger and acquisition) enthusiasm across the sector.”

The deal is the latest sign of consolidation in Canada’s cannabis sector. Aurora has been particularly active. It recently completed its $1.1-billion acquisition of Saskatoon-based licensed producer CanniMed, previously the biggest deal in the sector. Aurora and Can- niMed struck a stock-and-cash deal in January after an at-times terse takeover battle.

Aurora’s rivals have been acquisition hungry too.

In February, licensed producer Aphria Inc. completed its acquisition of B.C.based Broken Coast Cannabis Inc., a transaction valued at more than $200million in stock and cash.