Mergers making Canada cannabis industry leader
Aurora snatches up rivals in effort to become a ‘globally dominant’ player
Cam Battley, a senior executive at Aurora Cannabis, quipped in a recent note to company colleagues that “we need to accelerate” mergers and acquisitions activity, because “we haven’t acquired any other companies in several hours.”
Aurora has been snatching up firms — including two deals announced the same day last week, and a hostile takeover bid launched a day later — in an effort to become a fully integrated, “globally dominant” player in production and retail.
Amid analyst predictions that consolidation in the Canadian cannabis sector will leave production in the hands of a few large players, Edmonton-based Aurora is in growth mode, having amassed an estimated $340 million in cash from investors.
While Battley said his company is “unabashedly” pursuing its quest for dominance, the executive vice-president said he believes there will be room for companies of all sizes, including smaller, craft-style growers.
“We’re not snapping up everybody,” he said.
New data shows consolidation in the cannabis sector is heating up.
As of Friday, private and publicly traded pot companies in Canada have been involved in 75 mergers and acquisitions so far this year, compared to 33 in all of 2016, according to the New York-based cannabis advisory firm Viridian Capital Advisors.
The Canadian deals accounted for a little more than half of all mergers and acquisitions Viridian tracked around the world, mainly in North America, in 2017.
Stock markets have placed high valuations on Canadian cannabis firms leading up to legalization in July, with Aurora’s share price more than doubling in the past year.
This has allowed a few larger producers to amass “a huge amount of cash” to buy smaller competitors, said Troy Dayton, chief executive of the marijuana research and investment firm Arcview Group.
“We’re at a point now where Canada has the opportunity to become the leading country and the leading exporter of cannabis,” Dayton said, noting U.S. firms are at a disadvantage because cannabis remains federally illegal south of the border.
“This is the U.S.’s market to lose, and right now we are right about at that moment where we could lose it if we don’t change our laws to allow for that kind of growth here in the U.S.”
In its recent flurry of deal-making, Aurora acquired a fourth cannabis production facility with its $25-million purchase of H2 Biopharma near Montreal.
H2 has the option to buy 46 acres, or 19 hectares, of land that’s big enough to make way for a larger production facility than Aurora’s 800,000 square-foot, indoor growop under construction near the Edmonton International Airport.
The marijuana giant also made headlines last week for its hostile takeover bid for rival Canni Med Therapeutics. Aurora has offered to buy all of Canni Med’s shares for up to $24 each, which would value the target company as high as $551 million.
Battley said Canni Med shareholders who own 38 per cent of the stock had approached Aurora to buy the company, which the stockholders complained had been under-performing.
“We didn’t go looking for this,” Battley said.
If approved, the Canni Med deal would push Aurora’s total production capacity to roughly 135,000 kilograms a year, once all of its various construction projects are complete, said Greg McLeish, analyst at Mackie Research Capital.
“The players that are going to win ... are the people with the biggest balance sheets right now that have the ability to go out and buy some guys that potentially don’t have the (same) access to capital,” McLeish said.
Still, he said “there is always a danger” for companies buying rivals at a pace Aurora has taken to struggle with integrating the acquisitions into their operations.
Battley said another deal that Aurora announced earlier this year, the nearly $21-million purchase of Germany’s medical cannabis wholesaler Pedanios, gives the company a foothold in the European Union.
In September, Aurora sent its first shipment of 50 kilograms of dried cannabis to the Berlinbased subsidiary that distributes the drug to more than 1,500 pharmacies, with more shipments planned.
According to the industry publication Leafly, Canada has emerged as a world leader in medical cannabis exports.
Dallas McMillan, president of a Seattle-based cannabis consulting firm, said in a recent analysis about international pot that the battle for market share will be waged in part over the costs of production, which will fall as the industry consolidates, players become more professional and technology improves.
“This means that in order for companies to compete they need to be large and efficient, and minimize overheads such as electricity and labour,” McMillan wrote in his analysis, posted on LinkedIn.