With Canada set to establish a multi-billion dollar cannabis industry that will rival, or maybe even surpass, the spirits and wine industries, companies are looking to consolidate to increase their market share and maximize profits. Expensive regulatory hurdles, limits on licenses, and the need to compete with the prices seen on the unregulated market can be just some of the factors that lead to companies deciding that bigger is better. Aurora Cannabis Inc. is certainly following the “bigger is better” mantra, agreeing to purchase MedReleaf Corp. for C$3.2 billion ($2.51 billion) in stock, making it the largest cannabis industry deal in history. The MedReleaf purchase comes on the heels of Aurora’s acquisition of CanniMed for C$775 million.
The deal comes two months before cannabis is expected to be legalized for recreational use in Canada, and is the latest in a wave of mergers in the industry as marijuana makers — emboldened by similar moves in Europe and a number of U.S. states — seek to cut costs and gain scale.
Canada’s relaxed regulations, a mature industry, and free-flowing capital have offered firms a unique opportunity to advance research without the legal and political risks that bog down growers in the United States and elsewhere.
“The combination strengthens our capacity to service the rapidly expanding global medical cannabis markets, and amplifies our early-mover advantage,” Aurora Chief Executive Officer Terry Booth said in a statement.
As Reuters noted, the Aurora is seeing the global momentum for legalization as an underlying foundation for growth, particularly in Europe, where Germany has helped set the precedent for insurance coverage for medical use and the company isn’t done expanding:
“(Aurora is) targeting mostly Europe for exports … the demand is firmly in place, in terms of their medical market,” said Alan Brochstein, founder of cannabis-industry information provider 420 Investor.
“(Europe has) perhaps a better program initially in terms of insurance coverage and distribution through pharmacies,” he added.
Aurora would likely sign more deals, but not any as big as the MedReleaf acquisition, Booth said at a media conference in Toronto. The company would also consider listing its shares in New York, he added.
While large-scale production facilities may be able to bring down the price of cannabis production, the lack of competition can ultimately hinder consumers ability to find affordable cannabis at regulated stores. Hopefully, Canadian regulators will find the right mix of regulations over time to allow for craft cannabis producers and mom-and-pop stores to get a foothold in the market as well.
Even if you aren’t a big producer or operating a chain of retail stores, there will be plenty of jobs in the cannabis industry as these big corporations will need a ton of ancillary businesses to help them succeed. Opportunities will be vast, especially if advocates are successful in eventually helping implement sound regulations that reduce barriers to entry and allow for real competition. Maybe after the United States legalization, Canada won’t feel so much pressure to over-regulate. Only time will tell. I look forward to learning from my Canadian counterparts at the upcoming International Cannabis Business Conference in beautiful Vancouver to get a glimpse into the future of the cannabis industry.
Don’t miss Henry Rollins’ keynote address and the opportunity to learn the latest information and network with prominent entrepreneurs, investors, and advocates at the upcoming ICBC in Vancouver, British Columbia, this June 24th-25th. Get your tickets by June 6th to save $200. After Vancouver, the ICBC will be another cannabis-friendly city, Portland, Oregon, September 27th-28th, get your Portland ICBC tickets by September 12th to save $200.