Aurora Cannabis Inc. (TSX: ACB) will take a 19.9% stake in Hempco with an option to increase its interest to 50.1%
SmallCapPower | August 1, 2017: Aurora Cannabis Inc. (TSX: ACB), the second largest cannabis producer in Canada, announced Monday that it has finalized terms with Hempco Food and Fiber Inc. (TSXV: HEMP), one of the world’s largest industrial producers of hemp products, to make strategic investment in Hempco for a 19.9% stake on a fully diluted basis. Additionally Aurora Cannabis will obtain an option to acquire shares from the majority owners of Hempco, which, upon exercise, would increase Aurora’s total ownership interest in Hempco to 50.1% on a fully diluted basis. The investment is subject to regulatory and shareholder approvals.
As per the terms, Aurora Cannabis will purchase 10,558,676 units of Hempco at $0.3075 per unit (consisting of one share and one full share purchase warrant) for total gross proceeds of $3.2 million. Each warrant gives Aurora Cannabis the right to purchase, for a period of two years following the closing date, one additional common share of Hempco for an exercise price of $0.41. In case the Hempco common shares trade at or above a volume weighted average price of $0.65 for any 30-day period following the closing, the warrants are subject to accelerated expiry on 30 days from notice of the accelerated expiry being given by Hempco. As part of the investment, Aurora Cannabis has agreed to advance $1.5 million to Hempco at 10% interest per annum.
In addition to the investment, both parties also agreed to partner on the extraction of CBD from should the regulations allow such extraction in the future. Hempco has agreed to provide Aurora Cannabis right of first refusal to purchase all of the industrial hemp flowers and leaves that Hempco can acquire for extraction of CBD. The partnership also includes investor rights agreement whereby Aurora Cannabis shall have the right to appoint two members to Hempco’s Board of Directors and shall have the right to participate in future financings of Hempco in order to allow Aurora Cannabis to maintain its ownership stake in Hempco for so long as Aurora Cannabis maintains a 10% ownership interest in Hempco.
Cash-rich Aurora Cannabis ($110 million as of March 2017) continues to increase its global footprint through acquisitions and partnerships. Some of the recent acquisitions/investments included 19.9% stake in the IPO of Cann Group Limited (Australia); $20.9 million acquisition of Pedanios GmbH (Germany) and the $7 million acquisition of Peloton Pharmaceuticals in Canada. The current investment in Hempco helps Aurora Cannabis gain access to the rapidly-growing health supplement market, as well as secure considerable quantities of low-cost raw material for the potential future production of CBD extracts.
Aurora Cannabis recently uplisted to the TSX and has a market cap of $987 million, which is 47.20x its TTM sales.
Ubika Research/SmallCapPower has received compensation from Hempco Food and Fiber to provide analyst research coverage. For full disclosure please visit here >>
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