What's going on?
On Monday, Canadian medical marijuana producer Aurora Cannabis sparked up a deal with rival MedReleaf, acquiring it for around $2.5 billion (tweet this). Who said money doesn’t grow on trees?
What does this mean?
Aurora’s shares have tripled in the last year. So it’s probably no surprise that it’s paying for MedReleaf using its own stock – no money’s actually changing hands in this drug deal. In the end, Aurora will own about 60% of the new joint company, which will be able to produce over 600 tons of weed per year. That’s a lot of green.
Aurora hopes teaming up with its rival will complement both companies’ strategies and lower costs (a.k.a. create synergies), while building a business big enough to handle the increase in demand when cannabis becomes legal in Canada on July 1 (for recreational purposes – medical use was legalized in 2013).
Why should I care?
For you personally: Well, if Seth Rogen can do it…
Cannabis laws are mellowing out all over the world – Snoop Dogg’s favorite treat is now legal for medical purposes in 21 countries, including Germany and Spain – and several countries are considering decriminalizing it entirely, which would allow for recreational use. In the US, half the country permits cannabis for medical use – and you can smoke legally in a few states without a doctor’s note. Startups like goPuff have sprung up to meet the increased demands of smokers who, famously, might get an attack of the munchies.
For markets: Weeding out the small players.
This is the latest in a string of ten acquisitions made by Aurora in the last two years as it seeks to become the leader in Canada’s burgeoning cannabis market – and it caused both Aurora’s and MedReleaf’s stocks to roll up by 1%. The Canadians must be smoking something: also on Monday, medical marijuana producer Canopy Growth Corp picked up the final third of its greenhouse operator, causing Canopy’s shares to get 10% higher.