It seems the marijuana industry is not doing bad at all. This is due to the recent events where Aurora Cannabis has submitted a proposal looking to acquire the share of CanniMed Therapeutics. Aurora is not just looking for a small stake in the company, it wants to buy all the shares thus acquiring it. The company will buy CanniMed which trades on the Toronto Stock Exchange for a share price of $24. Well, if the deal will go through, Aurora is likely to claim the market cap of more than $3 billion. This is no small amount of money, so it could easily bump Canopy Growth from its position as the largest marijuana stock on the same market.
Do not expect that the merger would only affect these two companies. The other companies are likely to experience the ripple impacts of the merger too. It is also not just on the Canadian market, but also the world.
So, what are some of the effects we can expect? The combination of Aurora and CanniMed would result in the company having more than 40,000 active registered patients just in Canada. Of course, all these patients are registered. The deal would also redirect the online customers of CanniMed to the Aurora’s e-commerce platform, which is a big for the company. This should allow many patients to easily purchase medical marijuana from the company website.
The acquisition of CanniMed will definitely give Aurora a boost in terms of capacity. This means that the company would now have an access to additional five cultivation facilities. This is also with the aim of having more facilities set up soon. On the overall, Aurora is expected to have an annual production of about 130,000 kilograms of pot. There is no doubt that this is a lot of pot.
Having the combined entity would mean that there is also a greater international presence for Aurora. At the moment, Aurora has spread its wings to Germany. The company has also entered into an agreement with the Cann Group Limted for it to supply medical marijuana in Australia with ease. It also owns a stake of 20% in the Australian Company. It might not be a surprise to see it buying the company later. CanniMed had also entered into an agreement to supply weed to the Australian market as well as the Cayman Islands. The company is believed to have been in negotiations with other markets found in Europe and Africa.
It is believed that the merger was good for the two companies. Both companies have the best technologies they could use to improve their marijuana yields. The cross-application of such technologies should result in massive benefits for the two companies than when they were operating separately.
It is expected that the combination of CanniMed and Aurora is going to shake the Canadian medical marijuana to some noticeable degree. Canopy Growth, which for a long time enjoyed being at the top will now have a new larger rival to compete head to head. They are already big players, so we can wait and see how it all plays out. As much as that is the case, it is expected that recreational marijuana would be legalized in Canada by 2018. This means that the large players will have enough market to sell their products.
The impact we should be focusing on would be what happens to the other smaller marijuana growers. It might be possible that if the acquisitions keep happening in the cannabis industry, then smallercompanies would end up being phased out in a couple of years. It is a common practice where the larger players would seek to take out competition however small it can be.
It is also possible to have other companies in different types of fields other than marijuana looking to buy into the marijuana business. This has happened before when Constellation Brands bought a 10% stake in Canopy Growth for $245 million. This was to facilitate a way of infusing cannabis to beer. It is expected the new merger would also make Aurora attractive to such types of companies.
As much as we are already speculating, the proposition for Aurora to acquire CanniMed was unsolicited. These two companies have not officially talked about this potential combination. TheCanniMed board of directors is expected to review the proposal. If the board does not make a decision within the deadline issued by Aurora, then it can now move with a formal takeover bid.
There are high chances that the deal could go through as Aurora has secured themselves irrevocable lockup agreements with 38% of the shareholders of the CanniMed company. This means that these shareholders have agreed to vote against any other proposal than what Aurora had presented. Aurora should still not celebrate as there can be counters made by CanniMed to thwart the takeover. Let us wait and see it will go down.
