Canada’s multi-billion-dollar marijuana industry has officially entered the consolidation phase of its development. According to CBC News, Canada’s largest cannabis companies begun to enter the sector’s first state of merger madness.
Multi-billion dollar cannabis giants such as Aphria Inc. (TSXV: APH) (OTC: APHQF), Aurora Cannabis (TSXV: ACB) (OTC: ACBFF), and Canopy Growth Inc. (TSX: WEED) (OTC: TWMJF), are set to being acquiring and/or taking over mid-tier companies including CanniMed Therapeutics (TSX: CMED) (OTC: CMMDF), and MYM Nutraceuticals (CSE: MYM) (OTC: MYMMF).
The latest signal of a cavalcade of incoming mergers was the hostile takeover bid by Alberta-based Aurora Cannabis (TSXV: ACB) (OTC: ACBFF) of Saskatchewan-based CanniMed Therapeutics (TSX: CMED) (OTC: CMMDF) - a move that baffled some analysts, but was a sign of the intensity of the current booming cannabis market.
Not taking it lying down, CanniMed launched its own merger acquisition through a definitive agreement with Newstrike Resources Ltd., on the same day it was told by Aurora to respond to their bid.
Since then, CanniMed has aggressively tried to resist the takeover, however it’s abundantly clear that the wave of mergers and acquisitions in the sector is underway—Like it or not.
With an expected $22.6 billion market projected in Canada alone, the stakes are only going to get higher, as the date of legalization approaches.
One company that could either grow to become a buyer itself, or be acquired by a giant along the way is multination MYM Nutraceuticals (CSE: MYM) (OTC: MYMMF).
By planning and building one of the world’s largest cannabis greenhouse facilities in Quebec, Canada, and with another massive facility in Australia, MYM is a strong candidate to be still standing post-legalization, either partnered with another major, or by joining their ranks.
Merger mania is going to see all sizes of cannabis companies inter-mingling, including Aphria Inc. (TSXV: APH) (OTC: APHQF), Aurora Cannabis (TSXV: ACB) (OTC: ACBFF), and Canopy Growth Inc. (TSX: WEED) (OTC: TWMJF), CanniMed Therapeutics (TSX: CMED) (OTC: CMMDF), and MYM Nutraceuticals (CSE: MYM) (OTC: MYMMF).
MERGERS ARE INEVITABLE
After surveying nearly a dozen licensed producers (LPs), consultancy Ernst & Young determined that we will begin to see many takeovers and mergers to come in the months prior to legalization.
"Many believe that consolidation is inevitable, leaving a few large players post-legalization," Ernst & Young said in its recent report titled Insights and perspectives from Canada’s cannabis industry leaders. "Inorganic growth is expected to persist, leaving a few large players."
Former founder and CEO of Tweed Inc. (now Canopy), and also former Aurora board member, Chuck Rifici believes these deals all make sense due to the high stock values giving companies some extra weight to throw around and vacuum up smaller players in all-stock deals.
"It makes sense to do deals where you're buying optionality in a future market for not much in stock," former Tweed (Canopy) CEO and Aurora board member, he said to CBC news.
"These smaller companies are in a position to fill in gaps and get a nice premium on their stock and the larger guys are essentially printing cheap paper to do those deals. It's win-win."
Each of the billion-dollar-plus majors has at one point made a significant acquisition or merger in the past 18 months. There’s plenty of cash on hand in the sector to throw around at mid-tier firms on the way up.
With the Aurora/CanniMed/Newstrike flurry of acquisition attempts in recent months, it’s not impossible to predict that more large-scale integration is on the way.
MULTINATIONAL MERGER BAIT?
On two different continents, MYM Nutraceuticals (CSE: MYM) (OTC: MYMMF) is in the process of constructing two of the largest cannabis greenhouses in the world.
Both locations in Quebec, Canada and New South Wales, Australia are set to surpass a million square feet in facility size — 1.5 million square feet, and 1.2 million square feet respectively.
Once completed, these facilities are targeted to be capable of producing 150,00 kgs and 100,000 kgs of cannabis. Revenues for these facilities is expected to be between CAD $750 million and CAD $1.1 million in revenue respectively by 2021.
At the Weedon, Quebec project, MYM currently owns 75% (which goes up to 90% upon completion), and is set to help the municipality become the official cannabis capital of Canada.
While there are other mega-greenhouse projects in other provinces in Canada, MYM’s decision to house their operations in Quebec was very strategic— From an economic perspective, it can’t be ignored how cheap Quebec’s costs are.
Quebec labor costs on average 34% less than in the US, and 16% less than in G7 countries. Electricity is 36% cheaper than in the US, and 49% lower, on average, than in the G7 countries.
Quebec’s taxes on investment are the lowest in Canada, and more importantly lower than the average of the US, G7 countries, and the OECD countries. The province offers an investment tax credit that covers up to 24% of the cost of newly purchased manufacturing and processing equipment, and reimburses sales tax on capital goods.
Among the current billion-dollar cannabis companies, Aphria (Ontario), Aurora Cannabis (Alberta), Canopy (Ontario, Netherlands), none of their major projects are currently in Quebec. Not even CanniMed (Saskatchewan, Michigan) nor Newstrike (Ontario) are set to grow in Quebec.
With the above listed advantages of operating in Quebec, it’ll be interesting when the Weedon facility is opened to see how it competes with other major greenhouse projects in the world.
POTENTIAL MERGER CANDIDATES
Aphria Inc. (TSXV: APH) (OTC: APHQF)
Aphria is one of Canada’s lowest cost licensed cannabis producers, specializing in the production, suppy, and sale of medical cannabis. The company offers sativa, indica, and hybrid medical marijuana products, as well as cannabis oils. It also provides support services in the form of medical consultations, group therapies, and rehabilitation to veteran and first responders. The company sells its products through its online store or phones, as well as engages in the wholesale shipping of medical marijuana plant cuttings and dried buds to other licensed producers. Aphria Inc. is headquartered in Leamington, Canada.
Aurora Cannabis (TSXV: ACB) (OTC: ACBFF)
Aurora Cannabis boasts the second highest square footage approved for cannabis production in Canada. Together with its subsidiaries, Aurora produces and distributes medical marijuana products in Canada. The company’s products consist of dried cannabis and cannabis oil.
Aurora is the only cannabis producer located in the province of Alberta, giving the company a cost advantage through its free use of fresh mountain-fed water used on site, and housed under the lowest corporate tax rates and power rates in Canada. Capitalizing on numerous farm credit programs provided by the province, Aurora has positioned itself as arguably the lowest cost-per-gram licensed producer in Canada. Aurora became a licensed producer in 2015, and is based in Edmonton, Alberta.
Canopy Growth Inc. (TSX: WEED) (OTC: TWMJF)
Formerly known as Tweed Marijuana Inc., Canopy Growth is a multi-licensed, geographically diverse marijuana producer, described as “one of the world’s — and Canada’s first — premier exporters of marijuana” by the Financial Post in 2016. Canopy is the parent company of licensed cannabis producers, Tweed Inc., Tweed Farms Inc., Bedrocan Canada Inc., as well as newly acquired Mettrum Health Corp. Canopy currently has a combined growing platform of over 665,000 sq. ft. of production space. It was also the first federally regulated, publicly traded cannabis producer in North America, and the first billion-dollar cannabis corporation. Canopy Growth was founded in 2014, and is based in Smith Falls, Ontario.
CanniMed Therapeutics (TSX: CMED) (OTC: CMMDF)
CanniMed operates as a plant biopharmaceutical company, specializing in medical cannabis. It offers a plant biotechnology R&D development program that focuses on the production of plant-based materials for pharmaceutical, agricultural, and environmental applications. The company provides medical marijuana for Canadian patients. CanniMed Therapeutics Inc. was founded in 1988 and is based in Saskatoon, Canada.
For a more in-depth look into MYM Nutraceuticals you can view the in-depth report at American News Group: http://usanewsgroup.com/2017/12/04/like-it-or-not-the-cannabis-sector-is-unstoppable-and-its-just-getting-bigger/
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