MedReleaf, Aurora Confirm Talks Amid Reports of Pot Merger

(Bloomberg) -- Canadian marijuana producers MedReleaf Corp. and Aurora Cannabis Inc. said they’ve been in discussions amid speculation that the companies may combine.

MedReleaf said Thursday in a statement that it’s had talks with companies including Aurora "regarding various alternatives.” Aurora said the same in a separate statement. The Globe and Mail reported Wednesday that MedReleaf has contacted larger companies about a sale and that Aurora was engaged in talks.

MedReleaf rose 2.2 percent in Toronto to close at C$22.25, giving it a market capitalization of $2.2 billion. Aurora climbed 0.9 percent to C$8.02 for a valuation of $4.5 billion.

The potential tie-up would create a new category of “cannabis supermerger” as it would mean consolidation among the five largest producers, Beacon Securities analyst Vahan Ajamian said Thursday in a note ahead of the announcements. The move could spark a wave of other transactions in the industry, he said.

Companies in Canada’s nascent marijuana sector are trying to gain market share before recreational sales become legal sometime this year. Share prices for pot producers have soared amid investor optimism. Canadian sales could reach C$6 billion by 2021, according to a report from Canaccord Genuity Corp. The country’s top four producers have a combined market capitalization of almost C$15 billion. MedReleaf, based in Markham, Ontario, has a market value of C$2.2 billion; Aurora is twice that size.

Edmonton-based Aurora said May 1 it had completed its C$1 billion acquisition of CanniMed Therapeutics Inc., until now the biggest marijuana takeover. Aphria Inc., another Canadian grower, bought Nuuvera Inc. for about C$444 million in March.

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