Rich covers news that Canadian cannabis giant Aurora Cannabis (NYSE:ACB) (TSX:ACB) is buying out the remaining shares of hemp pioneer Hempco Food and Fiber Inc. (TSX-V:HEMP) (OTC:HMPPF). He talks about the terms of the deal, Aurora’s growth strategy and why this is good news for the whole sector, which was a sea of green Tuesday. Rich also touches on trends in the Marijuana Indices over the last year and offers some insight to investors on what he learned from studying Warren Buffet.
Aurora Cannabis’ (NYSE:ACB) (TSX:ACB) (Frankfurt:21P) stock got a much-needed boost Tuesday, following some encouraging news that will strengthen the execution of its global hemp and CBD strategy.
Aurora Cannabis announced that it will be acquiring all of the issued and outstanding common shares of Hempco Food and Fiber Inc. (TSX-V:HEMP) (OTC:HMPPF), causing its share price to increase by 3.96% to $11.82 CAD on Tuesday.
“This might be the catalyst that is bringing Aurora back today,” Rich said. “Back from the dead after a massive red day yesterday.”
This deal will see Aurora gain the rights to Hempco’s new, state-of-the-art Nisku facility is a 56,000 square foot and has a 2.9 million kilogram per year hemp processing facility. Hempco has also developed multiple distribution channels internationally, selling through highly visible platforms like Amazon, Metro inc., and Well.ca.
Aurora Cannabis Consistently Using its Stock to Acquire Growth
According to the deal, Aurora will pay $1.04 per Hempco share, payable in common shares of Aurora, reflecting a valuation of approximately $63.4 million CAD on a fully diluted basis.
This definitely isn’t the first time Aurora Cannabis has used its shares to acquire new entities. In fact, if you look at Aurora’s previous acquisitions, the company has paid for a number of them using at least a portion of its shares.
“This is a company that is using its stock to acquire its growth. They use it all the time and they are not afraid or ashamed to do it,” Rich explained.
Aurora acquired CanvasRX in 2016 using a combination of cash and common shares and did the same with privately held Peloton Pharmaceuticals in 2017. CanniMed Therapeutics Inc. was also acquired by Aurora through a combination of $1.7 million CAD in cash and 3.4 million Aurora shares.
The company then acquired Agropro UAB, Europe’s largest producer, processor, and supplier of certified organic hemp and hemp products, along with hemp processor and distributor Borela UAB, for total cash consideration of approximately $8.1 million CAD and common shares of Aurora equivalent to approximately $1.4 million CAD.
Aurora Cannabis has also completed a number of all-share transactions to acquire new entities. In June of 2018, the company acquired all of the issued and outstanding common shares of privately-held Anandia Laboratories Inc. in an all-share transaction valued at approximately $115 million on a fully diluted basis. The acquisition of MedReleaf Corp. in July 2018 was also an all-stock takeover.
The following month, when Aurora acquired leading Greenhouse Crop Consulting company, HotHouse Consulting Inc., it granted 1,940,000 options to buy shares of Aurora to officers of HotHouse, which will vest annually over the next three years and are exercisable at $7.39 per common share. The company has also granted HotHouse officers a total of 345,000 restricted stock units of the company, which will also vest annually over the next three years.
Click the video below to watch Rich TV Live coverage of the cannabis market and the Aurora/Hempco news.
ICC Labs also became a wholly owned subsidiary of Aurora last November, when the company acquired all of the issued and outstanding common shares of ICC for $1.95 per share, which, again, was payable in common shares of Aurora.
More recently, Aurora acquired all the issued and outstanding shares of privately held Whistler Medical Marijuana Corporation, in another all-share transaction that was valued at up to approximately $175 million and included certain milestone payments.
“They are absolutely number one when it comes to subsidiary companies,” Rich said. “Look at the names – MedReleaf, CanvasRX, Peloton Pharmaceutical, Aurora Deutschland, H2 Biopharma, Urban Cultivator, BC Northern Lights, Larssen Greenhouses, CanniMed Therapeutics, Anandia Labs, HotHouse Consulting, MED Colombia, Agropro, Borela, and ICC Labs.”
“This is good news for the whole sector. It’s good news for Aurora, but it’s also good for the whole sector,” Rich added.
Cannabis Market Rebounds
Aurora Cannabis wasn’t the only cannabis company in the green on Tuesday. In fact, both the Canadian Marijuana Index and the US Marijuana Index were up, with a majority of companies in the green.
“There is a lot of green today and the market is rebounding after a very disappointing day yesterday. The cannabis sector is rebounding in kind. Especially in Canada, up almost 2% and in America, it’s up 0.77%,” Rich said. “It’s nice to see that the market is back into the $600 range at $611.64 CAD. If you take a look at the last year, you can see there have been a lot of peaks and valleys. We have been almost as high as $1,000 a couple of times and we’ve been as low as $400. This is what I would consider the bottom region, $425, $600 is kind of the middle.”
He noted that while there is are a lot more green cannabis stocks today than there are red, red is always a buying opportunity if you are hunting a stock.
“Yesterday, when all of these stocks were red, that was the time to buy,” he said. “As you can see, a lot of them are bouncing back and you can see the green today. There are the decliners, so there still is some red today. These are the ones you might want to consider buying, they’re on sale.”
“At the end of the day, you want to buy stocks cheap right? So, how do you buy them cheap? You buy them in the red. And when they are expensive, that’s when you want to sell them. you want to sell them in the green,” he said. “If you are doing the alternative then you aren’t winning in the market.”
Rich told viewers that we have to learn how to invest in great companies. Stay in your lane, focus on the best and invest in the best.
“That’s just the way it goes in the stock market. I spent a lot of time studying Warren Buffet and that’s his strategy. That’s really his belief system. Invest in good companies, think long term and you’re going to win,” Rich explained. “Now, sometimes I’m also going to do momentum trades, but right now the way the market is, so choppy, I’m just going to just sit back and just watch and wait.”
Following this commentary, Aurora Cannabis’ share price continued to increase, closing up 3.96% at $11.82 CAD on the Toronto Stock Exchange at end of day Tuesday.