How Are Recent Acquisitions Stacking Up for Aurora Cannabis Inc.?

Aurora Cannabis Inc. (TSX:ACB) stock has surged after acquiring a stake in Liquor Stores N.A. Ltd. (TSX:LIQ).

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Aurora Cannabis Inc. (TSX:ACB) stock surged 24.65% on February 6, one day after a historic global rout. Shares have now climbed 20% in 2018 thus far. Aurora made a big splash in late January when it announced that it would acquire CanniMed Therapeutics Inc. to become the largest cannabis producer in Canada. The agreement marked the end of a months-long bitter dispute between the two companies.

The news pushed Aurora to an all-time high of $15.20 on January 24, but shares soon dipped in step with a broader sell-off in the red hot cannabis market. Many have also questioned whether Aurora had overextended in its pursuit of CanniMed given the inflated value of its stock price at the time the deal was announced.

A flurry of acquisitions followed suit as Aurora sought to establish itself against top producer Canopy Growth Corp. in 2017. Aurora also bought up hemp distributor Hempco, greenhouse contractor Larssen, cannabis vaporizer e-commerce supplier Namaste, and the Australia-based Cann Group. The acquisitions have propelled Aurora’s stock to rise over 280% over a six-month span.

Aurora filed updated CanniMed acquisition documents on the morning of February 6. It will acquire CanniMed at the steep price of $43 per share, which is quite an ask considering its original offer of $24 per share and its trading price of $36.49 as of close on February 6.

On February 5 Aurora announced that it would purchase a 19.9% stake in Liquor Stores N.A. Ltd. (TSX:LIQ), an Edmonton-based alcohol retailer. Its retail outlets are a staple in Western Canada. The deal gives Aurora access to over 230 retail outlets, some of which are to be converted into cannabis-focused outlets. Alberta is unique among the provinces as the government chose to give private retailers the opportunity to sell recreational cannabis.

The move is encouraging, especially considering the potential revenue that retail outlets will produce going forward. The State of Colorado, which legalized recreational cannabis four years ago and has a population of 5.5 million people, reported $119.6 million in sales of recreational cannabis in shops in November 2017 – a 9.5% increase from the prior year. The state has recorded $1.38 billion in sales for the first 11 months of 2017, surpassing the total number in 2016.

Aurora will hope to capitalize from comparable growth in Alberta, which boasts a population of just over 4 million. The retailer also has a presence in British Columbia. However, the provincial government in B.C. has opted to have cannabis sold online and through private and government-run stores. The B.C. government has stipulated that cannabis will not be sold alongside liquor or tobacco products.

Aurora will also have the opportunity to increase its stake to 40% at a later date if it so chooses. We now stand a mere five months away from the target date for recreational legalization. Aurora is moving quickly to establish distribution channels in an interesting scramble for position among the largest producers in the country.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

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