Aurora Cannabis Inc. is Going Big into HEMP

Aurora Cannabis Inc. (TSX:ACB) is set to own more than 50% of the shares of Hempco Food and Fiber Inc. (TSXV:HEMP)

SmallCapPower | May 17, 2018: Aurora Cannabis Inc. (TSX:ACB) announced on May 15, 2018, that it has exercised its right under a private option agreement to purchase a total of 10,754,942 additional Hempco Food and Fiber Inc. (TSXV:HEMP) shares (50% from Charles Holmes, 50% from Angela Holmes). Post the transaction, Aurora Cannabis Inc’s ownership interest in Hempco has reached 52.7% (50.12% on a fully-diluted basis).

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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, and generating revenue of $6.5 million during fiscal 2017. Hempco, however, reported just $0.5 million in revenue for Q1 2018 and $0.3 million in Q2 2018, which the Company attributed to its temporary exit from the Korean market and one major U.S. customer seeking an alternative third-party supply.

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Industrial hemp 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 especially once CBD extraction from hemp becomes legally permissible. Aurora Cannabis has a joint venture with Radient Technologies Inc, (TSXV: RTI), which will hopefully allow Aurora to cost effectively produce CBD-based products on large scale.

Aurora Cannabis CEO Terry Booth said, “Hempco plays an important role in our strategy to secure access to low-cost raw material for the potential production of CBD extracts once new legislation is in place allowing whole (hemp) plant utilization. Furthermore, this is a strategic partnership that also helps us develops a broader portfolio of value-added products for the health supplements market. By taking control, we will be able to more closely integrate Hempco’s operations with our own and drive growth.”

Aurora Cannabis is a licensed producer of medical cannabis pursuant to Health Canada’s Access to Cannabis for Medical Purposes Regulations (ACMPR). It operates a 55,200 square foot, state-of-the-art production facility in Mountain View County, Alberta, known as Aurora Mountain, and a second 40,000 square foot high-technology production facility, known as Aurora Vie, in Pointe-Claire, Quebec. A new facility near Edmonton International Airport, known as Aurora Sky, has been granted license in January 2018. After operating at full capacity, Aurora Sky is expected to produce more than 100,000 kilograms per annum of cannabis. Furthermore, Aurora is constructing fourth facility in Lachute, Quebec via its wholly-owned subsidiary, Aurora Larssen Projects Inc.

The announcement comes just one day after Aurora Cannabis said will acquire MedReleaf Corp. in an all-stock transaction valued at approximately $3.2 billion on a fully-diluted basis. Post approval from the shareholders, the combined company will have nine facilities in Canada and two in Denmark, producing more than 500,000 kilograms of cannabis per year. Aurora Cannabis currently trades at market capitalization of $4.4 billion on the TSX with price-to-book multiple of 2.71x.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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