Is Aurora Cannabis Inc. Looking to Make Another Big Acquisition?

Aurora Cannabis Inc. (TSX:ACB) continues to look to acquisitions to accelerate its growth.

| More on:

Last year, Aurora Cannabis Inc. (TSX:ACB) made big news when it was involved in the largest acquisition in the industry to date. However, signs are that the company is still not done, and it has now been confirmed that talks are ongoing with Aurora and medical marijuana producer MedReleaf Corp. (TSX:LEAF).

Rumours have been circling that MedReleaf is looking for a buyer, and Aurora could be a prime candidate to scoop up the cannabis company. MedReleaf is one of the largest pot stocks on the TSX, so this would have to be a big offer, as the company currently has a market cap north of $2.3 billion, which is a little more than half the size of Aurora’s $4.5 billion market cap.

No news yet

So far, both companies have been quiet as far as progress and how talks have been going, which is quite different than the drama we saw play out when Aurora was last involved in an acquisition attempt. Aurora brushed off the talks as nothing out of the norm, with the company issuing a statement saying that “the company does confirm that it engages in discussions with industry participants from time to time, including MedReleaf.” Aurora went on to say that no deal was in place.

Likewise, MedReleaf would not confirm any rumours, stating in its release last week, “As a general policy, MedReleaf does not publicly comment on unusual market activity, rumours or speculation in the marketplace or any potential transaction unless, and until, a binding legal agreement to effect that transaction has been signed.”

It looks like any information will be minimal unless we see a deal actually get signed.

The need for acquisitions in the cannabis industry

With so much fragmentation in the industry, it’s inevitable that we’ll see more acquisitions take place among pot stocks. Many companies are staking out strategic positions in different parts of the world, and that makes it appealing for big companies like Aurora and Canopy Growth Corp. (TSX:WEED) to grow via acquisition.

One of the reasons this is necessary is the challenge that new producers will face in light of many restrictions placed on the industry, and how hard it will be to advertise, which will make it difficult for a company to stand apart from the rest. This gives a big advantage to the already well-known companies in the industry, as their brands are already established and would command significant market share.

Takeaway for investors

Before investing in pot, investors should be aware of the risks involved. Most of these companies are not profitable, and without much cash on their books, any deals will have to resort to either debt or stock, which in the end could hurt the share price, and investors would suffer losses as a result.

Valuations are still astronomical in the industry, and the danger for investors is being caught up in all the hype. As we’ve seen already this year, pot stocks can be very volatile, and if you’re not careful, you could end up riding the roller coaster.

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 David Jagielski has no position in any of the stocks mentioned.

More on Investing

dividends grow over time
Dividend Stocks

1 Magnificent Dividend Stock That’s Down 10% and Trading at a Once-in-a-Decade Valuation

This dividend stock may be down around 10%, but there is a huge future opportunity for those wanting growth as…

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

RRSP Must-Haves: 2 Canadian Stocks to Secure Your Future

The TSX’s dividend pioneer and first Dividend King are must-haves in an RRSP to ensure financial security in retirement.

Read more »

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

Clean Energy Play: Is Brookfield Renewable a Good Stock for a TFSA?

Add this top renewable energy stock to your self-directed TFSA portfolio for significant long-term and tax-free wealth growth.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

financial freedom sign

2 Stocks With Millionaire-Maker Potential

These two top Canadian stocks are among the best on the TSX, and each has the potential to be millionaire-maker…

Read more »