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Cannabis seedlings at the new Aurora Cannabis facilty on Nov. 24, 2017.Ryan Remiorz/The Canadian Press

Aurora Cannabis Inc. is making a big wager on recreational marijuana retailing.

The company said on Monday it struck a deal to acquire a 19.9-per-cent stake in Edmonton-based Liquor Stores N.A. Ltd. for $103.5-million in cash, with a plan to increase that to 40 per cent.

The transaction gives Aurora a claim to the largest alcohol retailer in Alberta, with a presence in British Columbia, provinces where private stores are set to sell cannabis when recreational use is legalized this summer. Liquor Stores has 231 retail outlets, and the plan is to convert some to cannabis stores.

All levels of government are working out how the product will be sold to consumers. Ontario and Quebec are opting for government-run stores.

"We think we got a first-mover advantage in Alberta with the top liquor retailer in the province," said Terry Booth, chief executive officer of Aurora, which is building a massive growing facility at Edmonton International Airport. "They are an Alberta company, we're an Alberta company."

The acquisition is the latest big deal for Aurora. Last month, it agreed to buy medical cannabis grower CanniMed Therapeutics Inc. for about $1.2-billion in cash and stock, ending a months-long takeover battle.

When asked how Aurora will benefit at the store level from its ownership in Liquor Stores, Mr. Booth said only that "our intentions aren't just to put a few grams on their shelves." He said new marijuana stores would be designed with "the Aurora brand, Aurora style, in mind." However, advertising and branding rules, along with how cannabis will be sold and distributed, are still being ironed out.

B.C. said on Monday that marijuana will be sold online and through a mix of private and government-run stores. Cannabis will not be allowed in stores that currently sell liquor or tobacco.

The acquisition will take place in several steps. First, Aurora is buying the 19.9-per-cent stake in Liquor Stores through a private placement at $15 a share, a 28-per-cent premium to Friday's closing price. The deal is expected to close before Feb. 14.

Aurora will also buy $34.5-million in subscription receipts to be converted to shares after Liquor Stores' shareholder approval at the next annual meeting, lifting its interest to 25 per cent. Later, Liquor Stores will issue 10.1-million warrants to Aurora with an exercise price of $15.75 a share, which will bring its stake to 40 per cent for $160-million.

Liquor Stores is undergoing a retooling after a proxy fight last year resulted in an overhaul of its board of directors. It has since laid out a new operating strategy to freshen up its brands, one that has included selling much of its U.S. business. The company's banners include Liquor Depot, Liquor Barn and Wine Cellars.

The operations are heavily concentrated in the fiercely competitive Alberta market, and some outlets have underperformed. Longer-term lease agreements have at times kept laggard locations open, however. The cannabis industry opens up a new opportunity to revitalize those locations.

Liquor Stores officials declined to comment. But CEO James Burns said in a statement the transaction puts the retailer in a position "to establish a leading cannabis brand in Western Canada."

The company also plans to use a portion of the proceeds on its alcohol business, it said.

Its shares had increased as much as 39 per cent since mid-November as investors wagered it would join the recreational cannabis industry.

Russell Stanley, an analyst at Echelon Wealth Partners covering the cannabis sector, said the deal exemplifies an industry-wide push to look at new distribution channels.

"All these producers have completed financings that give them cash positions that are well beyond their stated production capacity plans, and that leaves them with cash to look at other investments. I think this is an example of the kind of thing we could see more of," Mr. Stanley added.

Ahead of marijuana legalization, traditional crops are being traded in for cannabis plants at Canadian greenhouses. The COO of legal pot producer Newstrike says crop turnover in the greenhouse industry is common.

The Canadian Press