Aurora M&A Spree Raises ‘Question Marks’ Before Weed Goes Legal

(Bloomberg) -- One of Canada’s largest marijuana companies is on a buying spree that’s leaving "question marks” for investors, according to a portfolio adviser with a focus on the fast-growing industry.

Since November, Aurora Cannabis Inc. has invested in retail liquor stores, an organic waste technology company, and acquired multiple cannabis producers, including CanniMed Therapeutics Inc. That streak of deals culminated in this week’s C$2.49 billion ($1.94 billion) agreement to purchase rival grower MedReleaf Corp. in the industry’s largest takeover.

Yet Aurora hasn’t divulged certain details, including how it plans to integrate multiple businesses, said Charles Taerk, chief executive officer of Faircourt Asset Management in Toronto. Faircourt runs the cannabis-focused UIT Alternative Health Fund, which doesn’t include Aurora.

Shares of Aurora have fallen 11 percent since the MedReleaf deal was announced May 14. Aurora officials haven’t provided an exact figure for the cost savings expected from the takeover. The company’s Chief Corporate Officer Cam Battley said its CFO and financial team did extensive due diligence and "came out of that exercise with big smiles.”

Looming Legalization

“When any company goes on an expansion through many acquisitions in a short period of time there are tendencies to have challenges integrating,” Taerk said Thursday by phone. “There are certain questions that are going to be asked and management should be more transparent with answers.”

Aurora’s slew of acquisitions comes amid a race by scores of companies to secure market share before Canada legalizes recreational marijuana, expected later this year. Aurora’s two major production facilities in Alberta won’t be complete by then.

Aurora is building an 800,000-square-foot facility, known as Aurora Sky, in Edmonton. It was initially slated for completion in October. The company last month announced plans to build a 1.2 million-square-foot greenhouse in Medicine Hat.

The first harvest at Aurora Sky will occur next month and it’s expected to be at full capacity in early 2019, Battley said. Aurora has significant production and stockpiles, has signed some supply deals and expects to conclude others.

“We’re producing now and will be producing more as we ramp up during the year,” Battley said in a phone interview. “It’s not like the industry stops on day one of legalization.”

The company, which has a market value of C$4.1 billion, has about half of the current production capacity of its main competitor, Canopy Growth Corp., Taerk said. “The amount of production Aurora wants to get to, we just have a question mark on whether they’re going to get there and in what period of time,” he said.

There’ll be a shortage of marijuana in the first year of legalization, according to PI Financial analyst Jason Zandberg, as many other licensed producers in addition to Aurora won’t have their expansions and construction projects completed in time. Aurora has been making acquisitions to bridge that gap, he said.

To contact the reporter on this story: Jen Skerritt in Winnipeg at jskerritt1@bloomberg.net.

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

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