Aurora Cannabis to buy the Hempco Food and Fiber shares it doesnt own for 14% premium – MarketWatch
Posted on by Jessica Harington
Aurora Cannabis Buys Out Remaining Stake In Hempco (NYSE:ACB)
Canada-based Aurora Cannabis Inc. ACB, +4.35% ACB, +3.96% announced Tuesday an agreement to buy the Hempco Food and Fiber Inc. shares HEMP, +10.44% it doesnt already own in a deal that values Hempco at C$63.4 million ($47.4 million). Auroras U.S.-listed shares rose 0.7% in premarket trade, after falling 4.2% on Monday to close at a 1-month low. Under terms of the deal, Aurora will pay C$1.04 for each of the 48% of Hempco shares outstanding that it doesnt own, which is 14% above Mondays closing price. "This transaction will enable us to fully integrate Hempco and its new Nisku processing facility into Auroras global hemp operations including Agropro, Borela and ICC," said Aurora Chief Executive Terry Booth. "Our goal is to strengthen our CBD-from-hemp supply chain as well as our hemp business of hemp-based superfoods, nutraceuticals and fibers." Auroras stock has run up 71.6% year to date through Monday, while Hempco shares have lost 13.3%, the ETFMG Alternative Harvest ETF MJ, +0.71% has rallied 35.9% and the S&P 500 SPX, +0.05% has gained 15.9%.
Cannabis grower Aurora Cannabis Inc (NYSE: ACB) on Tuesday announced a deal that will help it further cement its position as a vertically integrated cannabis company.
Highlighting a couple of features of this facility are; a “sophisticated glass roof, rainwater and snowmelt recapture system, and automation that gives Aurora full control over all anticipated environmental and harvest conditions.” Even when the facility is running Aurora plans on critiquing and improving its technologies to create “high-quality cannabis at a low-cost price.” They will be able to do this with some of the strategic acquisitions that help them build a facility that functions more like a science lab than a greenhouse. Some of these companies would include; BC Northern Lights which help in hydroponic growth boxes, HotHouse Consulting which specializes in indoor growing techniques, and Aurora Larsson Projects which also helps in greenhouse development. In all, this facility plans on a high yielding crop while cultivating top quality marijuana at a low price.
Aurora signed a binding agreement with Hemp Food and Fiber Inc, or Hempco, to acquire all outstanding shares of the latter it doesn't already own for C$1.04 per Hempco shares in stock. The per share transaction value represented a valuation of C$63.4 million (about $47.5 million USD) on a fully diluted basis.
With this new addition, Aurora should be able to produce at least 80,000 more kg of marijuana per year which is by no means an insignificant amount. In Q2, Aurora had a net selling price of $6.23 per gram for dried cannabis at a production cost of $1.92 per gram so this can be extrapolated to an increase of (498,400,000-153,600,000) =$344,800,000 per year in extra gross margin. This calculation is on a very crude basis that only includes dried cannabis, but it stands as an example of the profitability of the addition. If we were to include Auroras projection of $1 per gram with an increased selling price due to fewer taxes, this number creeps closer to an extra $500,000,000 per year. Obviously, there are increased costs associated with building additions to the facility but nonetheless, Aurora stands to make a considerable profit with the addition.
Hempco has been in the business of providing quality hemp-based products, hemp fiber and hemp neutraceuticals, marketing brands such Planet Hemp and Praise. It also supplies foods and nutritional supplements for people and animals. With the combined assets, Aurora is well positioned to drive growth through sale of hemp products to more than 100 countries worldwide.
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Aurora initially made an investment in Hempco in 2017 and currently owns 52 percent of the outstanding Hempco shares.
This transaction will enable us to fully integrate Hempco and its new Nisku processing facility into Auroras global hemp operations including Agropro, Borela and ICC, said Aurora chief executive officer Terry Booth. Our goal is to strengthen our CBD-from-hemp supply chain as well as our hemp business of hemp-based superfoods, nutraceuticals and fibers. With vertical integration, product innovation expertise, and global reach, we are well positioned to extend our market share in these potential multibillion-dollar industries. We look forward to executing with the Hempco team on our global hemp and CBD strategy, and we invite the Hempco shareholders to join us on this exciting journey.
"The full integration of Hempco into this infrastructure adds further capacity, brands and distribution channels to capitalize on the global CBD wellness opportunity, which is anticipated to grow to $22 billion by 2022," Aurora said in a press release.
In a research note released before market open, Clarus Securities analyst Noel Atkinson raised his target for Aphria shares, noting: [Monday] Aphria reported its Q3/FY19 (Feb) financial results that missed our forecast, particularly when it came to the crucial Canadian cannabis business unit. However, the results tell the story of a company dealing with limited capacity and production bottlenecks until it received Health Canada licensing for the crucial Part IV/V expansion (80,000 kg/year) that was received right after quarter-end on March 4. We still expect a very large and rapid ramp in revenues starting this summer that should deliver significant economies of scale.
Aurora Cannabis to buy remaining interest in Hempco Food and Fiber
Upon completion of the deal, Hempco will become a wholly-owned subsidiary of Aurora and its shares will be delisted from the TSX Venture Exchange.
Hempco provides Aurora with a low-cost, high-volume source of hemp for the extraction of CBD (cannabidiol), a substance with therapeutic properties thats also found in cannabis.
The deal is expected to close in the second quarter of 2019, with a definitive agreement likely to be signed on or before May 15.
EDMONTON — Aurora Cannabis Inc. (ACB.TO) plans to acquire the remaining 48 per cent of Hempco Food and Fiber Inc. that it does not already own through an exchange of shares.
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This news release includes statements containing certain “forward-looking information” within the meaning of applicable securities law (“forward-looking statements”). Forward-looking statements are frequently characterized by words such as “plan”, “continue”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “potential”, “proposed” and other similar words, or statements that certain events or conditions “may” or “will” occur. Forward-looking statements in this news release include, but are not limited to statements with respect to accretive earnings, future financial position and results of operations, anticipated benefits and costs synergies associated with the Transaction, internal expectations, estimated margins, expectations for future growing capacity, costs and opportunities, liquidity of Aurora Shares, effect of the Transaction on the combined company and its future strategy, plans, objectives, goals, targets and future developments, expectations for receipt of licenses to process or distribute cannabis in legal markets, the completion of any capital projects or expansions, the anticipated timing for the closing of the Transaction, the anticipated consideration to be received by Hempco shareholders, the satisfaction of closing conditions including: (i) required Hempco shareholders approval; (ii) necessary court approval in connection with the Transaction; (iii) certain termination rights available to the parties under the Letter Agreement; (iv) Hempco obtaining the necessary approvals from the TSX-V; (v) Aurora obtaining necessary approvals from the TSX and NYSE for the listing of the Aurora Shares issuable under the Transaction; and (vi) other closing conditions, including, without limitation, the operation and performance of the Hempco business in the ordinary course until the closing of the Transaction. These statements are only predictions. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this news release. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Neither Aurora nor Hempco are under any obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.