Quebec's Top Weed Supplier Looking to Enter Acquisition Fray

(Bloomberg) -- Expect more deals in Canada’s burgeoning marijuana sector.

Quebec’s largest producer Hydropothecary Corp. is exploring acquisitions to broaden its offerings or distribution footprint, according to Chief Executive Officer Sebastien St. Louis. It’s interested in rivals with provincial supply contracts as well as companies with technology to create new pot products -- even if they hail from other industries, he said.

A race to secure a share of the Canadian market before the country legalizes recreational marijuana later this year has sparked a slew of purchases. Alberta-based Aurora Cannabis Inc. is leading the effort to consolidate the industry, setting a record with its agreement to buy MedReleaf Corp. for about C$2.9 billion ($2.2 billion) last month. That followed its acquisition of CanniMed Therapeutics Inc. in January and several smaller deals.

“There aren’t a lot of licensed producers that are attractive from an acquisition standpoint,” St. Louis said in a phone interview, while predicting consolidation will continue. Below the six or seven biggest companies, “quality falls dramatically,” he said.

Hydropothecary, which met investors in New York last month, wants to catch up with the market capitalization of competitors such as Canopy Growth Corp., Aurora or Aphria Inc. As of Friday’s close the company hovered around C$900 million, about a fifth of Aurora.

St. Louis said the company, based in Gatineau across the river from Ottawa, is not for sale and wants to become one of the world’s two largest marijuana businesses.

In April it signed a five-year supply agreement with Quebec’s alcohol distributor that could exceed 200 metric tons of cannabis products, strengthening its grip on about a third of its home market. It submitted bids in other provinces such as Ontario, Canada’s most populous province, which has yet to announce its plans.

The contract helped Hydropothecary shares rise about 17 percent this year, one of the best performers among the 10 largest publicly traded marijuana companies. The company, which will sell its recreational products under the HEXO brand, has applied to graduate from the TSX Venture Exchange in Toronto into the main bourse.

--With assistance from Doug Alexander, Jen Skerritt, Kristine Owram and Steven Frank.

To contact the reporter on this story: Sandrine Rastello in Montreal at srastello@bloomberg.net

To contact the editors responsible for this story: Jacqueline Thorpe at jthorpe23@bloomberg.net, ;Crayton Harrison at tharrison5@bloomberg.net, Chris Fournier

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