(Reuters) - Aurora Cannabis Inc will buy rival MedReleaf Corp for C$3.2 billion ($2.51 billion) in the biggest deal yet to unify major Canadian pot growers, as the country moves toward legalizing marijuana for recreational use.
The deal announced Monday is the latest in a wave of mergers in the industry as marijuana producers — emboldened by pot legalizations 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.
Canadian regulators have granted over 70 firms licenses to produce and sell medical marijuana, with more than half granted in 2017 or 2018.
Aurora and MedReleaf together expect to produce over 570,000 kilograms per year of cannabis through nine facilities in Canada and two in Denmark.
“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.
Canada is one of the few countries that exports marijuana, allowing growers to take immediate advantage of recent medical pot legalizations in more than 20 countries. The worldwide legal marijuana market is expected to generate revenue worth $146.4 billion by end of 2025, according to California-based market consultancy by Grand View Research.
“(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.
The acquisition is Aurora’s second large deal this year, coming just months after it bought CanniMed Therapeutics for C$1.1 billion.
Shares of Aurora and MedReleaf each rose 1 percent on Monday morning on the Toronto Stock Exchange.
Aurora shareholders will own about 61 percent of the combined company, following the all-stock deal. Aurora offered to buy each MedReleaf share for C$29.44, representing an 18.2 percent premium to MedReleaf’s Friday closing price.
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.
“Aurora has ... been pretty aggressive with their expansion plans but now shareholders will want to see those assets being put to use before the company rushes out and buys something else,” said Bruce Campbell, chief investment officer at Cannabis Growth Opportunity Corp.
Reporting by John Benny and Yashaswini Swamynathan in Bengaluru; Editing by Arun Koyyur and Sai Sachin Ravikumar