Aurora Cannabis (TSXV: ACB) is expected to take a significant ownership stake in industrial hemp producer Hempco Food and Fiber Inc. (TSXV: HEMP)
SmallCapPower | June 8, 2017: Aurora Cannabis Inc. (TSXV: ACB) announced on Thursday, June 8, 2017, that it will make a strategic investment in Hempco Food and Fiber Inc. (TSXV: HEMP) for an ownership stake of up to 19.9% on a fully diluted basis, with an option to bring its total ownership interest in Hempco to 50.1% on a fully diluted basis.
Hempco announced this private placement after the market close on Wednesday, saying that 11,382,113 units would be issued at $0.3075 per unit, which includes a warrant exercisable at $0.41, valid for two years. Hempco currently has 41 million fully-diluted shares outstanding and its stock price closed at $0.47 on Wednesday.
Hempco is one of the biggest industrial producers of hemp and hemp products in the world, providing bulk and packaged food products (such as hemp protein powder, hemp seeds or hearts, hemp oil), hemp fibre, and nutraceuticals. Hempco recorded revenues of about $4.5 million for the six-month period ending February 28, 2017, a 136% increase over the comparable period last year.
This transaction appears to be a good strategic fit for Aurora Cannabis as hemp is a ‘distant cousin’ genetically to cannabis, although the amount of tetrahydrocannabinol (THC) in hemp is not sufficient to produce any type of pain killing benefits when consumed. Regular eaters of hemp claim heart and colon health benefits, as it is rich in fibre, and there has been growing demand for hemp-related products in health food stores.
Industrial hemp also contains efficient extractable quantities of cannabidiol (CBD), a compound shown to have considerable medical benefits in symptom management. The market for cannabidiols in the form of capsules, oils, and topicals is expected to grow significantly in the coming years. Aurora Cannabis recently entered into a joint venture with Radient Technologies Inc, (TSXV: RTI), which will hopefully allow Aurora Cannabis to cost effectively produce CBD-based products on large scale.
As well, there are geographic synergies, as Hempco is currently completing the construction of a hulled hemp seed processing facility in Leduc County, Alberta, less than 5 km from the Aurora Cannabis Aurora Sky production facility now under construction at Edmonton International Airport.
With investor interest in Canadian marijuana stocks waning, Aurora Cannabis would likely be wise to further diversify its product line, especially given Health Canada’s May 26, 2017, announcement that it will make numerous changes to its medical cannabis program that should result in more licensed producers.
Ubika Research/SmallCapPower has received compensation from Hempco Food and Fiber to provide analyst research coverage. For full disclosure please visit here >>
The Content contained on this page (including any facts, views, opinions, recommendations, description of, or references to, products or securities) made available by SmallCapPower/Ubika Research is for information purposes only and is not tailored to the needs or circumstances of any particular person. Any mention of a particular security is merely a general discussion of the merits and risks associated there with and is not to be used or construed as an offer to sell, a solicitation of an offer to buy, or an endorsement, recommendation, or sponsorship of any entity or security by SmallCapPower/Ubika Research. To read more of this Disclaimer please click on the button below: