Business

Canada cannabis industry merger creates ganja giant

Friday, January 26, 2018

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OTTAWA, Canada (AFP) – Canadian cannabis producer Aurora's Can$1.1 billion (US$890 million) acquisition of rival CanniMed Therapeutics on Wednesday will create a global pot behemoth as the legalisation of recreational-use of marijuana takes hold.

The deal is the largest yet in Canada's hot cannabis industry, which has seen stocks soar in anticipation of Canada's legalisation of marijuana for recreational use later this year, and creates one of the largest producers of cannabis in the world alongside competitor Canopy Growth.

Under the terms of the deal, Aurora agreed to pay Can$43 in cash and shares for each CanniMed share – nearly double its original offer in November.

“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,” Aurora chief executive Terry Booth said in a statement.

Canada is expected to pass legislation to legalise recreational-use marijuana effective July 1, but complications in setting up distribution and effective controls could delay the launch.

In the lead-up, the sector has seen frenzied activity. The market capitalisation of the three largest Canadian producers of medical marijuana, for example, has exploded in recent months, fuelled by the prospect of growth.

In one year, the Aurora shares on the Toronto Stock Exchange increased sixfold, while CanniMed, Canopy Growth and Aphira shares rose fourfold.

These valuations, whose sustainability remain in doubt, illustrate a growing interest for the soft drug, which could also be a tax manna for Canada and other jurisdictions – including six US states – that have moved to legalise cannabis.

BUDDING BUSINESS

More than 80 cannabis companies are publicly traded in Canada, with a total estimated market capitalisation in the low tens of billions.

Aurora has become one of the largest in the world by buying up rivals and creating partnerships in Canada, Europe and Australia.

Others are also jumping in, hoping to grab a share of what arguably promises to be an explosive market.

In October, American alcohol distributor Constellation Brands bought a 9.9 per cent stake in Canopy Growth, saying it was looking to “stay ahead of evolving consumer trends and market dynamics”.

Two months later, Canopy Growth partnered with Danish Cannabis to establish a 40,000 square-metre greenhouse in Odense, Denmark, to supply the European market.

Huge greenhouses in Canada, meanwhile, are being converted to grow pot. They include Emerald Health Therapeutics partnering with Village Farms in British Columbia; Aphria teaming up with southern Ontario's Double Diamond Farms; Canopy Growth taking over a 700,000-square-foot organic greenhouse in the Montreal area owned by the largest North American producer of pink tomatoes, and MYM Nutraceuticals building a greenhouse in Weedon, Quebec, with surface area of ​​about 20 football fields.

There are currently 88 medical cannabis producers licensed in Canada, a number that the government statistical agency says “is growing rapidly in anticipation of the legalisation of cannabis for non-medical purposes”.

The government estimates that as many as 4.6 million Canadians will consume 655 metric tons of cannabis annually, spending an estimated Can$4.2 billion to Can$6.2 billion each year.

There were hopes of exporting Canadian cannabis to the United States.

But the Trump administration's decision, announced earlier this month, to enforce federal anti-marijuana laws put those plans in doubt.

Announcing a “return to the rule of law”, US Attorney Jeff Sessions called on the 94 US attorneys around the country to enforce federal laws, which classify marijuana as a dangerous narcotic like heroin.

In Canada, the Toronto Stock Exchange warned in anticipation of the move that any cannabis firms that violate US federal laws – for example by selling cannabis in the United States – could be delisted.

Ottawa, meanwhile, is poised to collect more than Can$500 million in taxes on cannabis sales.

However, the government figure does not take into account the impact on sales of Canadians opting to grow up to four plants at home for personal use under the new regime.

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