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Aurora Cannabis Inc (TSE:ACB), CanniMed Therapeutics Inc (TSE:CMED) Deal Nearing Completion

— Benjamin A. Smith
Aurora Cannabis EVP Cam Battley discusses the takeover of Cannimed with James West

Aurora Cannabis Inc (TSE:ACB) (OTCQB:ACBFF) and CanniMed Therapeutics Inc (TSE:CMED) (OTCMKTS:CMMDF) are getting closer to closing their business combination, as announced by both companies today.

Aurora announced that it has been successful in its offer to obtain all issued and outstanding common shares of CanniMed. This marks an important benchmark in the merger process because Aurora will own 17,847,341 shares—or approximately 70.66% of the total outstanding amount on a fully diluted basis—once shares are paid for not later than three business days after the CanniMed Shares are taken up.

CanniMed CEO Brent Zettl discusses the reasons why the merger shouldn’t proceed back in December 2017

As part of the deal, Aurora Cannabis will issue a total of approximately 50.6 million Aurora common shares and pay around $98 million is cash for CanniMed shares tendered as of March 8, 2018.

CanniMed now has until 11:59pm PST on March 25 to officially tender their shares and consummate the marriage. If that condition is not met, there’s no guarantee Aurora Cannabis will further extend its purchase offer, thus throwing merger plans in disarray. From everything the Midas Letter is hearing and reading however, chances of an impasse are virtually nil.

Given the timeline and official clearance by Aurora cannabis shareholders, the merger should officially be cemented in no more than 16 days time.

Aurora Executive Vice President explains why the Aurora takeover is good for CanniMed shareholders back in November, 2017

Full details of the Offer are available on SEDAR under CanniMed’s profile at www.sedar.com

What To Expect From The Combined Entity

On paper, the Aurora Cannabis-CanniMed Therapeutics merger is a big deal because it creates the biggest combined cannabis enterprise in Canada by market cap. Once consummated, the company will be valued at approximately $6.485 billion (current prices), eclipsing the Canopy Growth (TSE:WEED) market cap of $6.21 billion. For all intent and purposes, it creates two sector leaders in Canada, dethroning Canopy Growth as the ‘clear’ benchmark.

An Aurora-CanniMed entity will combine two of the leading international medicinal cannabis brands abroad. Aurora will pick up an additional 97,000 sq. ft. in production, to go along with the 820,000 sq.ft. in production it already has. Aurora also gains access to CanniMed’s sophisticated own quality control laboratories, Tier-1 productions facilities, and first-of-its-kind high-performance liquid chromatography methodology.

In a nutshell, Aurora Cannabis has turbo-charged it’s rapidly expanding medicinal cannabis portfolio. As an added bonus, the company’s immense growing power should lead to expanding profit margins on CanniMed’s refined goods. With 9-times the current production capacity of CanniMed—and a 1 million sq. ft. hybrid greenhouse planned in Denmark—Aurora has the scope to significantly reduce CanniMed’s existing input costs. It will be interesting to see how the combined entity’s margin costs play out down the line.

Following the merger, CEO Terry Booth expects a quick integration between both companies. “Following the take up, we will immediately commence with the integration of CanniMed into the Aurora organization and start executing on realizing the strategic synergies we have identified”. 

The Midas Letter will have more coverage as the merger consummates and the new exchange listing approaches.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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bsmith@midasletter.com |

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

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