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Cannabis seedlings are seen at an Aurora facility.Ryan Remiorz/The Canadian Press

Two of Canada’s largest legal growers of medical marijuana are tying the knot, striking a landmark transaction with a record price tag.

Aurora Cannabis Inc. said on Monday that it agreed to acquire rival MedReleaf Corp. in an all-stock deal valued at about $3.2-billion. Aurora says adding MedReleaf will make it the country’s largest legal marijuana grower by several metrics, including sales, dethroning titan Canopy Growth Corp. – for now, at least.

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The tie-up comes nearly two weeks after The Globe and Mail first reported that Aurora and MedReleaf were in talks, and that MedReleaf was searching for an alternative offer.

It’s the most recent in a flurry of transactions made by Aurora, which has led a wave of consolidation that has kept Bay Street bankers and lawyers busy serving the nascent industry. Producers are scrambling to amass scale and lower their costs ahead of Canada’s plans to legalize and regulate the non-medical use of marijuana later this year. And that’s because their business models are about to change: they will sell more product for much less per gram than they do today.

Terry Booth, Aurora’s chief executive officer, has made no secret of his dreams to dominate the sector and become the world’s biggest legal marijuana grower. Aurora has been in a hurry to grow, both at home and abroad, before the United States moves to legalize cannabis at the federal level, which would spark global leaders in pharmaceutical, alcohol and consumer goods to enter the fray.

“Our objective is to become the world’s largest cannabis company,” Cam Battley, chief corporate officer at Aurora, told reporters on Monday. “And there’s no time to be lost.”

“I would add to that, the world’s best cannabis company,” Mr. Booth said. “Scale is one thing, but at the end of the day, it’s about product.”

With most of its facilities still under construction, Aurora is taking steps to boost its near-term supply of cannabis and gain access to production facilities in Ontario. MedReleaf operates two indoor facilities in the province, one in Markham and another in Bradford. It also said it plans to retrofit a greenhouse in Exeter, Ont.

Aurora grows marijuana today in Alberta, Quebec and Saskatoon. It’s currently building an 800,000-square-foot greenhouse next to the Edmonton airport. In mid-April, Aurora said it bought 71 acres of land in Medicine Hat to construct a new 1.2-million-square-foot growing site to serve Canada’s looming recreational base of consumers and medical markets abroad.

“Our eyes are on the global market,” Mr. Battley said. “The scale of the global medical-cannabis market dwarfs everything that we’ll ever be able to achieve in Canada. Our eyes are on that prize.”

It made a splash in January when it agreed to buy CanniMed Therapeutics Inc., ending a multimonth process that started hostile. That deal was valued at $1.2-billion when it was announced in January, which was near the peak of the market for pot stocks. Aurora paid for CanniMed in stock and about $140-million in cash.

Aurora’s been busy spending the rest of the money it’s raised. As of March 31, it had $161-million in cash. MedReleaf is sitting on about $218-million in cash.

Investors in MedReleaf will receive 3.575 shares of Aurora stock for every MedReleaf share they own under the terms of the proposed deal. That implies a per-share price of $29.44, or $3-billion, a 34-per-cent premium based on a formula that takes into account the past 20 days of trading activity in both stocks as of May 11. (The $3.2-billion price tag is calculated on a fully diluted basis, meaning it assumes securities such as options and warrants will be exercised.) MedReleaf investors will own roughly 40 per cent of Aurora.

Asked when MedReleaf investors can start selling their Aurora shares, Neil Closner, the CEO of MedReleaf, replied: “I honestly don’t know that answer, nor am I really thinking about that now.” (The answer: They can start selling once the deal closes.)

Shares of MedReleaf have risen sharply in the past month and April 25 was a busy day in MedReleaf options. In mid-April, the stock was trading a little above $15, tumbling after reaching $30 to start 2018. One week later, after it became public that MedReleaf was in play, its shares were sitting just below $22. The stock rose 1 per cent on Monday to $25.26.

When asked for comment on the trading activity in his shares before the talks were first reported by The Globe, Mr. Closner said: “I can’t comment. I mean, we can speculate. Sometimes these rumours get out there. I don’t know how they did, but certainly they did. I really don’t know what was going on. I certainly wasn’t trading.”

The volatility in pot stocks is a sign of just how young and speculative the industry still is, making it hard to value the businesses from one week to the next. Aurora and MedReleaf say they first floated the idea of a combination in December, 2015. Mr. Booth says there is no better time to pull the trigger, assuming prices keep rising.

“If we don’t do this now, we’re going to be doing it later at a higher price,” he said.

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