Toronto — Canadian marijuana producer Aurora Cannabis is in talks with rivals CanniMed Therapeutics and Newstrike Resources to buy both businesses in a friendly deal that would create the country’s top weed company, according to informed sources.
The deal signals an easing of tension after an offer in November by Aurora, Canada’s second-biggest listed cannabis producer, to buy CanniMed in an all-stock bid that was met with resistance and a C$725m (R7bn) lawsuit filed last week.
The combined company formed by the deal would inch ahead of industry leader Canopy Health’s C$7.1bn market value.
The deal-making and fund-raising frenzy comes as weed companies jostle for prime position before the country’s legalisation of the recreational use of marijuana in mid-2018. Buying CanniMed and Newstrike would boost Aurora’s capacity to meet the demand at home, as well as abroad as more countries approve the use of medical marijuana.
Aurora had strongly opposed a plan by CanniMed to buy Newstrike. On Wednesday, Newstrike shareholders voted in favour of that deal, but on Thursday CanniMed postponed its investor vote on the acquisition to engage in talks with Aurora.
If the three companies did not reach a deal, CanniMed could further postpone the vote, according to the sources, which declined to be identified because they were not authorised to speak publicly about the matter.
While Aurora now preferred to acquire both companies, it could also settle for just CanniMed if talks with Newstrike failed, the sources said.
Under Aurora’s original bid, which was capped at C$24 a share, if CanniMed were to buy Newstrike, Aurora’s offer would not proceed.
The sources said Aurora was ready to raise its offer price for CanniMed and would look to use its own stock, on a tear with the rest of Canada’s cannabis industry.
CanniMed’s share price was up 6.7% at C$34.77 at the close in Toronto. Aurora stock was 3.9% up at C$13.48 and Newstrike’s 5% at C$1.47.
"We said from the beginning that we’d be happy to sit down for friendly, collaborative discussions, so we’re going in with an open mind," Aurora chief corporate officer Cam Battley said on Friday. "Perhaps there’s an opportunity to do something on a friendly basis."
A CanniMed representative declined to comment.
A Newstrike representative did not immediately respond to a request for comment.
With this latest development, Aurora’s offer for CanniMed and CanniMed’s bid for Newstrike would be scrapped and replaced with a new friendly agreement, the people said.
The deal could be announced as early as Monday, according to the sources, who also cautioned that there was no certainty of agreement being reached.
Aurora had more than C$500m of cash and marketable securities as of December 31, it said on January 2.
The talks between the three parties started earlier last week, the sources said.