Canadian marijuana growers agree to $2.2 billion merger

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Bloomberg) -- Consolidation in Canada’s nascent marijuana industry is heating up, with two of the largest players agreeing to the biggest merger seen so far in the sector.

Aurora Cannabis Inc. agreed to buy rival MedReleaf Corp. for about C$2.9 billion ($2.2 billion) in stock, the companies said Monday in a statement. The deal will create a producer with the capacity to grow 570,000 kilos (1.26 million pounds) a year of cannabis at nine facilities in Canada and two in Denmark. The merged company will also have distribution networks at home as well as in Europe, South America and Australia.

Canadian marijuana growers are racing to gain market share as Prime Minister Justin Trudeau pushes to legalize recreational use this year. Aurora is leading the effort to consolidate the industry, having acquired more than 10 targets in the past two years.

Aurora Chief Executive Officer Terry Booth said there will be more consolidation in the industry.

“We’re not done,” he told reporters in Toronto. “Over the next couple weeks you’ll see some more activity from Aurora,” but nothing on the scale of the MedReleaf deal, he added.

Chief Corporate Officer Cam Battley said Aurora’s goal is to “become nothing less than the world’s largest cannabis company.” Aurora sees particular growth opportunities in the European Union.

Aurora’s stock fell 2.1 percent to close at C$7.90 in Toronto, while MedReleaf’s gained 1.7 percent to C$25.26.

“The likelihood of another bidder emerging with a superior offer is low in our view, given the size of the transaction and the overwhelming support of MedReleaf’s shareholders,” GMP Securities analyst Martin Landry said in a note. He added Aurora may find it challenging to swallow another large deal so soon after its acquisition of CanniMed, which closed earlier in May.

In another Canadian deal announced Monday, Canopy Growth Corp. said it agreed to buy the 33 percent stake in greenhouse operator BC Tweed Joint Venture Inc. that it doesn’t already own. Canopy also said it plans to list on the New York Stock Exchange.

Weed companies are also seeking to capitalize on investor enthusiasm. Share prices for producers have soared over the past year: the Bloomberg Intelligence Canada Cannabis Competitive Peers Index, which comprises 54 companies, has almost doubled in the period and has a market capitalization of about $65.4 billion.

For the growers that emerge as industry leaders, the prize isn’t just a legal Canadian market -- where sales could reach C$6 billion by 2021, according to a report from Canaccord Genuity Corp. Governments in other parts of the world, particularly Europe, are heading in a similar direction to Ottawa, and several Canadian growers have been keen to advertise their ambitions to grow and distribute cannabis overseas.