Largest Cannabis Firm in Canada Looks to Get Even Bigger
With the upcoming Spinoff of its US cannabis investment arm, Aurora Cannabis, Inc. (ACB CN) continues to be front and center in the news as it strategically positions itself via acquisitions and partnerships for the upcoming legalization of recreational use of marijuana in Canada by October 17, 2018. This is why this company has quickly become the largest marijuana firm in Canada and one of the largest Globally.Distribution Details...
For every 34 shares a Canadian resident investor holds in Aurora Cannabis, Inc. (ACB), they will receive 1 Unit of Australis Capital, Inc. (AUSA). Each Unit will consist of 1 common share and 1 share purchase warrant. Each warrant will entitle the shareholder the ability to acquire 1 share at an exercise price of $0.25 per AUSA, on or prior to 4pm ET one year from the date of the Spinoff. Non-residents of Canada who are holders of ACB will receive cash instead of Units. With no official date announced regarding the Spinoff, we anticipate that AUSA should be Spun off sometime in September as the residency declaration requirements came to a close last Friday (Sep 7th).
Index Play...
ACB (pre-Spin) is a member of the S&P/TSX Composite Index (added in March 2018), which consists of the largest (by market cap and liquidity) Canadian stocks. As a result of AUSA’s tiny market cap calculation of ~CAD$50m, it is very likely to be sold off by any index fund holders of ACB once the distribution is completed.
The Edge View…
In the wake of the positive news flow around legalization, cannabis company share prices have skyrocketed in the last year. However, despite being the potential market leader with a market share of 26% by 2021E, ACB’s share price has underperformed its peers and is trading at a discount of ~45% to its closest peer (WEED) on FY21 EV/EBITDA multiple (at 24.1x compared to WEED’s 45.1x). In our view, the market has not factored-in the synergy benefits derived from the acquisition of MedReleaf (for CAD$3.2bn) and CanniMed (for CAD$1.1bn).
Aurora Cannabis is engaged in the acquisition, exploration and development of resource properties, primarily in Canada.
The Edge Group - Global Fundamental Catalyst Investing. The Edge provides investors with access to hidden corporate value from Global Special Situations using a pioneering approach to investments. Founded in 2005 by fund management and investment banking professionals to provide high quality, private equity-level research on Global Corporate Divestitures for the benefit of fundamental event-driven, growth and value-oriented investors in this difficult to track, but proven investment space.
The Edge will look to screen and analyze include Spinoffs; Reverse Morris Trusts; Squeeze Outs; Privatizations; Demutualization; Deep Discounted; Rights Issues; Rights Offering; Restructuring; Insider Purchases / Buying Change of Management / CEO Change; Deteriorating fundamentals; Post-Bankruptcy; Reorganization; Tender Offer; M&A Deals; Secondary Offering; Share Swap; Thrift Conversions; Share Buybacks; Activist; Mergers. All analyzed from a fundamental point of view.
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