An Aurora Cannabis Inc. (TSX:ACB) merger with Newstrike Resources and CanniMed Therapeutics would create the biggest cannabis company in Canada by market cap
SmallCapPower | January 23, 2018: Newstrike Resources Ltd. (TSXV:HIP) shares soared nearly 50% on Monday following a Reuters report Friday that Aurora Cannabis Inc. (TSX:ACB) would be willing to acquire Newstrike as a way of convincing the existing CanniMed Therapeutics Inc. (TSX:CMED) shareholders to agree to a takeover by Aurora Cannabis. Shares of Aurora gained 8% on Monday, while CanniMed Therapeutics stock added nearly 9%.
The two-month battle between Aurora Cannabis and CanniMed has taken twists and turns and could finally be coming to an end. It all began in November 2017, when Aurora made a hostile all-stock bid for CanniMed capped at $24. Vehemently opposing the hostile takeover as unfriendly and arguing the offer was based on an overly-inflated Aurora Cannabis stock price, CanniMed itself agreed to a friendly takeover of Newstrike Resources, whose shareholders overwhelmingly supported the deal with CanniMed on January 18, 2018. CanniMed announced Friday night that it is postponing its own shareholder vote on the Newstrike deal scheduled for Jan 23 to Jan 25 to discuss a possible transaction with Aurora Cannabis. Since the initial bid of Aurora Cannabis for CanniMed is conditional on the Newstrike deal not going through, the new transaction would in result in a new friendly agreement replacing the earlier bids of Aurora-CanniMed and CanniMed-Newstrike.
If the new friendly agreement is signed, the combination would create the most valuable cannabis company in Canada with a market cap of $8.3 billion (based on prices as of January 22, 2018), surpassing Canopy Growth Corp.’s (TSX:WEED) $7.2 billion. As legalization of recreational cannabis in Canada fast approaches, big cannabis producers including Aurora Cannabis are scrambling to boost their production capacity through both organic and inorganic means. Currently Aurora Cannabis has a production capacity of ~10,000 kgs per year, which will increase to more than 100,000 kgs per year once the mammoth 800,000 sq ft “Aurora Sky” facility comes online by end 2018. If Aurora Cannabis acquires CanniMed and Newstrike Resources, it will immediately add 10,000 kgs of capacity per year (CanniMed 7,000 + Newstrike 3,000) with potential to add another 20,000 kgs (CanniMed 13,000 + Newstrike 7,000) by 2019.
Disclosure: Neither the author nor his/her family own shares in any of the companies mentioned above.
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