Aurora Cannabis Takes Bigger Stake in Radient, Takeover Coming?

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Aurora Cannabis Inc. (TSE:ACB) to nearly double its ownership interest in Radient Technologies (CVE:RTI) to 15.87% diluted

SmallCapPower | December 6, 2017: Aurora Cannabis Inc. (TSX:ACB) announced on Monday that it will make additional investments in Radient Technologies Inc. (TSXV:RTI) for a total of $12.0 million. Post the investment, Aurora’s ownership interest in Radient will increase from the current 8.8% to 19.18% on an undiluted basis and 15.87% on a diluted basis.

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The $12.0 million investment comprises of two parts – 1) exercise of all 15.86 common share purchase warrants of Radient currently held by Aurora Cannabis for proceeds of $5.8 million and 2) investment through a private placement wherein Aurora Cannabis will purchase 4.54 million units (one common share + one warrant) of Radient at $1.37 for proceeds of $6.2 million. Each warrant gives Aurora Cannabis the right to purchase one common share of Radient for $1.71 within 24 months following closing of the placement.

Radient will use the proceeds for plant capacity expansion and increased throughput at its Edmonton facility as well as for the purchase of adjacent land for further expansion.

Terry Booth, CEO of Aurora Cannabis, said “With multiple Aurora facilities coming online and ramping up production in the coming quarters, as well as the anticipated export of cannabis oils and preparations for the legalization of adult consumer use in Canada, Radient’s planned expansion positions both companies exceptionally well to accelerate revenue growth. “This investment reflects our strategy to build a constellation of vertically integrated partners and subsidiaries, and we look forward to jointly pursuing further expansion of market share in this exiting space.”

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Top players in the Canadian cannabis industry including Aurora Cannabis are scrambling to boost capacity through acquisitions as well as organic expansions to prepare for the large market opportunity once the recreational market is legalized in mid-2018. In addition to building the world’s largest Aurora Sky facility that would take the Company’s total capacity to exceed 100,000 kgs annually, Aurora Cannabis is also aggressively pursuing acquisitions for expansion and vertical integration. Aurora Cannabis is currently in a takeover fight for CanniMed for $580 million that could result in the creation of the largest cannabis producer in Canada. Other recent acquisitions include Larssen Ltd (greenhouse engineering and design consultancy), H2 Biopharma (a late-stage ACMPR applicant based in Quebec), and increasing its ownership stake in Cann Group Ltd (CAN.AX) from 19.9% to 22.9% on Monday.

The strategic investment in Radient will strengthen vertical integration at Aurora Cannabis, enabling the Company to accelerate the production of high-margin cannabis derivatives, particularly fast-growing non-smoked derivative cannabis products once Aurora Cannabis begins harvests in H12018 at the world’s largest 100,000+ kg per annum Aurora Sky production facility. Aurora Cannabis will also collaborate with Radient on other R&D projects that will be beneficial for both companies.

Aurora Cannabis is the second largest cannabis producer in Canada with a current annual production capacity of 8,800 kgs. The Company trades a market cap of $2.98 billion, or ~128x its trailing 12 months revenues of $23.25 million.

Disclosure: Neither the author nor any of the principals at SmallCapPower, or their family members, own shares in any of the companies mentioned above.

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