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Giant Canadian Marijuana Grower Buys Rival Grower for $1.1 Billion

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Two of Canada’s biggest marijuana producers have completed the largest deal in the country’s thriving marijuana industry following several months of negotiations that began with a hostile takeover bid.

Aurora Cannabis, based in Alberta, is buying CanniMed Therapeutics Inc. for $1.1 billion in a “friendly” deal, according to CBC News Canada.

Terry Booth of Aurora said, “We are very pleased to have come to terms with CanniMed on this powerful strategic combination that will establish a best-in-class cannabis company with operations across Canada and around the world.”

The deal came several months after Aurora made its initial offer to purchase CanniMed in mid-November with a bid that showed company share values as high as $24. CanniMed said the offer wasn’t high enough considering the volatility of stock market valuations for the marijuana industry recently.

The companies’ executives exchanged some harsh words publicly early on. Earlier in January, CanniMed filed a suit against Aurora, saying that Aurora conspired to “injure the company’s economic interests.”

This week, the companies indicated that the new deal could increase shares to about $43, based on a share price of $12.65 with an exchange rate of $3.40, according to Aurora. The final value of the deal may change before settlement in consideration of the volatility of marijuana industry stocks.

CanniMed shares closed up almost 12% on the Toronto Stock Exchange Wednesday after news broke about the deal.

This deal is the largest of its kind in the Canadian marijuana industry since Canopy Growth bought Mettrium Health for $430 million two years ago.

With the acquisition, Aurora becomes one of Canada’s largest marijuana producers in reference to market capitalization.

Russell Stanley, analyst at Echelon Wealth Partners, estimates that the sector will have additional consolidations this year with recreational legalization happening in California.

Canada is positioned to become the world’s first G7 country to legalize recreational marijuana.

Stanley said, “I do expect more transactions to follow. I think it’s a question of when and not if, and who the dance partners will be. The largest cannabis companies in the space trade at higher multiples than the smaller names, and that means they have strong acquisition currency to use for transactions like this.”

In the future, according to Stanley, Canada could see additional mergers and acquisitions in the marijuana industry that wouldn’t be just “buying scales.” He said, “We could transactions that could give companies better geographic exposure or strength on different product development. I don’t think they’ll all just be about size.”

Vahan Ajamian, analyst for Beacon Securities, agreed with Stanley by saying it’s too late for marijuana cultivators to expand their businesses organically in enough time to meet public demand by this summer. He said, “One way to get faster access to capacity is to make more acquisitions.”

Photo: flickr (goo.gl /hUXrBF)