Pot Growers Aurora, CanniMed Agree to a $1 Billion Merger

(Bloomberg) -- Canadian marijuana producer Aurora Cannabis Inc. agreed to acquire CanniMed Therapeutics Inc. in a sweetened C$1.23 billion ($1 billion) cash-and-stock deal that would be the largest merger yet in the country’s red-hot cannabis industry.

Investors will get 3.4 Aurora shares for each CanniMed share, or they can accept cash limited in aggregate to C$140 million, the companies said Wednesday in a joint statement after Bloomberg News first reported the agreement. 

The takeover comes amid a wave of consolidation in Canada’s burgeoning marijuana sector as companies seek to gain market share before sales become legal by July.

Share prices for pot producers continue to soar and bigger companies are seeking out smaller rivals to secure market share. The stocks have ballooned amid investor optimism recreational marijuana sales could reach C$6 billion by 2021 and the country’s top four producers are now worth nearly C$20 billion. Aurora’s market value has surged to about C$6.8 billion after its shares rose more than fivefold in the past 12 months.

The country has at least 84 publicly traded companies tied to marijuana that trade on its exchanges, with a combined market valuation of C$36.9 billion.

Constellation Deal

In October, Constellation Brands Inc., the seller of Corona beer, announced the purchase of a minority stake in Canadian weed producer Canopy Growth Corp., marking the first major foray by an alcohol company into the industry. There will probably be at least one more major deal between an alcohol company and a cannabis company within the next three months, Beacon Securities analyst Vahan Ajamian said Tuesday in a note.

"It has been quite a long road, but it’s been well worth it," Cam Battley, chief corporate officer at Aurora, said in a phone interview. "We’re going to create something new and very special in this sector."

The deal values CanniMed at about C$50.29 a share, based on Tuesday’s closing price for Aurora of C$14.79. CanniMed closed at C$37.51. In November, Aurora offered a bid that valued CanniMed at C$24 a share.

In connection with the merger, CanniMed agreed to terminate a previously agreed takeover of Newstrike Resources Ltd. Newstrike said in a statement it will get C$14.1 million from CanniMed paying a break-fee, exercising share warrants and converting a debenture.

CanniMed gained as much as 24 percent to C$46.51, a record intraday high. Aurora climbed 2.1 percent to C$15.10 at 10:47 a.m. in Toronto, while Newstrike’s shares were halted after plunging 18 percent.

--With assistance from Doug Alexander

To contact the reporters on this story: Scott Deveau in New York at sdeveau2@bloomberg.net, Kristine Owram in Toronto at kowram@bloomberg.net, Jen Skerritt in Winnipeg at jskerritt1@bloomberg.net.

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Millie Munshi

©2018 Bloomberg L.P.