A statement released by the Canadian companies on Monday morning revealed that Aurora Cannabis Inc. would be purchasing MedReleaf Corp. for roughly C$2.9 billion ($2.3 billion) in stock.
The all-stock deal approved by the majority of Aurora shareholders and two-thirds of MedReleaf shareholders give their investors 61% and 39% of the newly merged company respectively. With this deal in place, Aurora now has control of nine different Canadian facilities and two in Denmark. This gives them the ability to grow 1.26 million pounds of marijuana at a projected profit of C$6 billion by the year 2021. This deal, now overshadowing Aurora’s previous transaction with CanniMed Therapeutics Inc. for C$1.1 billion, comes with more than what looks to be a legitimate Canadian market. It also opens the floodgates to markets overseas.
The medicinal use of marijuana to alleviate the symptoms of painful diseases like those of patients with cancer and HIV/AIDS has been legal in Canada since 2013. Now, their Prime Minister is pushing for the legalization for the recreational use of the drug which is expected to go through this July. As this legalization materializes, United States growers are left lagging behind in this global market opportunity because of the country’s regulations. More than half the country has already legalized the medicinal use of marijuana, but it doesn’t look like they will be ready to participate in the burgeoning overseas marijuana market. 21 countries including Australia, Colombia, and Germany have agreed to legalize in recent years.
With a projected two months to go before the legalization of recreational marijuana takes hold in Canada, growers bunker down for the ravenous competition that is sure to ensue. By July, the legal, adult-use of recreational marijuana is expected to produce a staggering $5 billion for growers. This deal thus begs the question, why would MedReleaf sell now with the legalization in Canada looming so imminently?
MedReleaf share prices were on the rise just ahead of the sale, and they announced just over a month ago that they had purchased an additional 164 acres of land for growing. In its last quarter, MedReleaf revealed that approximately 21% its revenue was secured via the sale cannabis oil which has a higher margin and has come to the forefront of profit for cannabis companies in recent years. “MedReleaf needed a better suitor or its company, and it played right into Aurora’s M&A strategy. And as we see a consolidation in the next few years within the industry, companies like Aurora might just be too big to fail,” stated Jason Spatafora, co-founder of MarijuanaStocks.com.
This indicates the company to be on the trajectory of success and made it an ideal target for a company such as Aurora, who now has a foothold in Ontario, to purchase. Aurora Cannabis Inc., who would gain MedReleaf Corp’s patient base and operating houses to name a few, did not previously have a base in Ontario, the province with the largest population in the country.
This mega-merger brings Aurora to the forefront, making it an ideal candidate to be the largest market leader against rival Canopy Growth Corp. With the burgeoning cannabis industry on the rise, companies like Aurora and Canopy Growth will continue to battle it out for the top spot in the Canadian marijuana industry.
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