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Over the last year, the amount of merger and acquisition activity in the cannabis industry has significant increased. This is a trend that we expect to become much more significant over the next year and view this as a very positive trend for the sector.
2018 has been a banner year for the cannabis industry and 2019 will be even more significant. Today, we have highlighted two leading Canadian cannabis producers that have made significant acquisitions in 2018.
Canopy Growth to Acquire Hiku Brands
Canopy Growth (WEED.TO) (CGC) and Hiku Brands (HIKU.CN) (DJACF) entered a definitive agreement where Canopy Growth will acquire Hiku for approx. $270 million or $1.91 a share. Hiku’s previously announced acquisition of WeedMD (WMD.V) (WDDMF) was cancelled after this announcement and Canopy has advanced Hiku $10 million to pay the termination fee pursuant to a promissory note.
Under the agreement, Hiku shareholders will receive 0.046 of a Canopy Growth common share for each common share of Hiku, representing a premium of 33% based on the 20-day volume weighted average prices of the Canopy Shares and the Hiku Shares as of July 9th. We expect Hiku to surge higher today and are favorable on the combined company.
This transaction strengthens the diversity and range of brands in Canopy’s portfolio and improves access to multiple demographic segments. We are favorable on this acquisition as it provides the companies with integration and expansion opportunities with respect to recreational market.
Over the next year, the legal cannabis industry will see incredible growth as new markets open and existing markets grow. The focus on creating a brand that resonates with consumer is very important and we favorable on Canopy’s opportunity to create one with Hiku. Canopy has the resources and expertise to bring Hiku to the next level and this is a stock that investors need to monitor.
Aurora Announces Another Acquisition
Today, Aurora Cannabis Inc. (ACB.TO) (ACBFF) and CannaRoyalty Corp. (CRZ.CN) (CNNRF) announce the signing a binding term sheet, whereby Aurora is purchasing CannaRoyalty's exclusive Canadian license to use and commercialize pre-roll technology developed by Wagner Dimas.
In return, Aurora will issue CannaRoyalty approx. $7 million worth of common stock. This acquisition is in-line with the company’s focus on expanding its product portfolio and we are monitoring how the team continues to execute. Over the last year, Aurora has made several significant acquisitions and has used its stock as a currency. We are favorable on these acquisitions and investments and expect them to prove to be accretive.
Later this month, we expect Aurora’s acquisition of MedReleaf (LEAF.TO) (MEDFF) to close and consider this to be a very significant move ahead of the opening of Canada’s recreational market. MedReleaf further improves Aurora’s product offering and increases total production capacity. Although Aurora has continued to execute, the shares have been under pressure and we are a monitoring the decline. This weakness has been consistent with what we have seen with the overall market and are bullish on the opportunity. We are favorable on Aurora’s long-term outlook and will keep an eye on how the market responds to the announcement today.
Is Aphria an Acquirer or an Acquisition Target
In early 2018, Aphria Inc. (APH.TO) (APHQF) announced two significant acquisitions and the market responded favorably to this. First, the Canadian cannabis producer acquired Broken Coast Cannabis, a craft cannabis producer based on the West coast of Canada. Following this move, the company acquired Nuuvera. This addition was significant as it further enhanced Aphria’s international exposure.
Following these acquisitions, Aphria became highly focused on the global medical marijuana opportunity and entered several new markets. We are excited by this move and believe it has caught the attention of the cannabis market. On August 1st, Aphria will report fourth quarter financial results and we expect the Canadian cannabis producer to release strong numbers.
There has been rumors of Aphria being an acquisition target for a large alcohol company. There is no evidence to justify these rumors and we continue to monitor the shares. In late 2017, Constellation Brands (STZ) invested approx. $250 million in Canopy Growth and we would not be surprised if a big alcohol company was taking a hard look at a company like Aphria.