Aurora shares skyrocket after spate of dealmaking
Cannabis companies draw interest in booming sector ahead of legalization
Shares of Aurora Cannabis Inc. jumped another 14 per cent on Monday and have now nearly tripled over the past month, buoyed by a rising tide in the Canadian marijuana sector and the company’s recent dealmaking.
The stunning run — shares closed Monday at $8.25, up 190 per cent over the past 30 days — has pushed its market capitalization to approximately $3.3 billion, within shouting distance of the $3.7-billion valuation for Canopy Growth Corp., the leading licensed producer of marijuana in Canada.
“There’s been more of a pivot toward us, and I think a bit of a catchup,” said Cam Battley, executive vice-president at Alberta-based Aurora, in an interview.
“But what we’re finding is we’re being identified as a partner of choice and that’s why these opportunities are coming to us at such a rapid pace.”
The sector in general has been booming as the federal government’s July 2018 target date for the legalization of recreational marijuana draws closer.
A deal this month in which Smiths Falls, Ont.-based Canopy sold a 9.9-per-cent stake to U.S. alcoholic beverage giant Constellation Brands Inc. for $245 million has also been a major catalyst.
The transaction has been viewed as lending legitimacy to both Canada’s pot sector and Canopy, and has helped push up the value of Canopy shares by more than 50 per cent over the past month. The stock closed up 3.1 per cent Monday, at $19.63.
“I think it made it real for a lot of people that perhaps were on the fence as to whether or not the industry has the growth prospects that others have been saying that it does,” said Russell Stanley, analyst at Echelon Wealth Partners. “So to have that external valuation come in was huge for the space.”
Stanley said that larger cannabis companies are drawing the most interest post-Constellation — the Canadian Marijuana Index, which tracks 18 of the “leading” cannabis stocks, is up 65.5 per cent since the deal was announced Oct. 30 — as they represent potential investments that could help “move the needle.”
“I think that has been part of why we’ve seen some of the bigger cannabis names outperform to some extent, and Aurora, I think, has certainly benefited from that,” Stanley said.
But the market caps of Aurora and Canopy are also bigger than that of businesses boasting far bigger revenues, such as West Jet Airlines Ltd., Hudson’s Bay Co., or Cineplex Inc., among others.
“The market has delivered its verdict on our share price and the valuation of our company,” Battley said. “What investors are seeing, I think, is the most dynamic company in the sector.”
Aurora has been involved in a furious round of dealmaking in recent weeks. The latest transaction was announced Monday, involving one of Aurora’s subsidiaries, BC Northern Lights, and Namaste Technologies, an online retailer of accessories such as vaporizers that are used to consume medical marijuana. Under the terms of the agreement, Namaste would be the first third-party distributor of BCNL’s equipment for home growing.
The Namaste deal follows Aurora announcing last week it is buying Larssen Ltd., a Canadian designer of greenhouses, for an undisclosed amount. In announcing the deal, Aurora said in a release it would review Larssen’s Canadian deals, and that any of those projects “deemed not to be in the best interest of Aurora shareholders” would be scuttled.
“What we’re saying is, if they choose to continue working with Larssen, we’re going to want to enter into some level of partnership because Larssen, of course, is now a part of Aurora,” Battley said.
Aurora has also launched the first major hostile takeover in the history of Canada’s cannabis sector, seeking to buy Saskatchewan-based medical marijuana company Canni Med Therapeutics Inc. Aurora has made an all-stock offer for Canni Med of up to $24 per share.
“We’ve got the execution capability and management skills to be able to really get the most out of Canni Med’s assets and take this and create the global leader that Canni Med shareholders are looking for,” Battley said.
Aurora has said its bid has the backing of shareholders representing 38 per cent of Canni Med shares, including three of Canni Med’s biggest shareholders. Regulatory filings made last Friday show that those shareholders are two venture capital funds and an investment fund based in Saskatchewan — Apex Investment Limited Partnership, Golden Opportunities Fund Inc. and SaskWorks Venture Fund Inc. — as well as Toronto-based Vantage Asset Management Inc.