Aurora Cannabis on Aug. 25 announced a subsidiary is buying a 50.1 per cent stake in Bevo Agtech, the parent of vegetable and ornamental plant producer Bevo Farms — which in turn is buying Aurora Cannabis’ Aurora Sky grow facility at Edmonton, to convert to “non-cannabis” use.

Publicly-traded, Edmonton-based Aurora said it had paid about $45 million cash to Bevo’s selling shareholders on closing of the deal, with up to another $12 million in Aurora stock to follow over the next three years depending on “certain financial milestones” being reached at Bevo’s Site One facility at Langley, B.C.

On the other side of the deal, Bevo is to pay up to $25 million to Aurora over time for the Aurora Sky facility — in Leduc County, near Edmonton International Airport — based on “certain financial milestones” being reached at that site.

Bevo is billed as one of the biggest suppliers of propagated vegetables — mainly tomatoes, peppers, cucumbers and eggplants — and ornamental plants in North America.

The company today grows greenhouse seedlings, field crop seedlings and floral plants on 63 acres of greenhouse space at Langley, Aldergrove and Pitt Meadows in B.C.’s Fraser Valley.

Bevo’s management team will remain “significant” shareholders in that company and will embark on a “robust” growth plan, including the use of Aurora Sky to grow orchids and propagate vegetables.

Aurora Cannabis, which has shuttered multiple production sites in several provinces in the recent years, had announced in May it would close the Aurora Sky site by its third quarter in 2023.

At that time, Aurora Sky — purpose-built in 2018 as the largest cannabis production facility in the world — was operating at just 25 per cent of capacity, the company said.

Aurora CEO Miguel Martin, in the company’s Aug. 25 announcement, said the deal with Bevo to repurpose Aurora Sky will save “significant costs previously expected in connection with the wind-down and sale of the facility.”

Aurora, he said, expects its investment in — and collaboration with — Bevo to “drive significant shareholder value and synergies for both parties.”

Bevo CEO Leo Benne, in the same release, said expanding into Alberta “allows us to significantly expand Bevo’s addressable market,” by boosting its production capability, extending its shipping range and accessing “new regional greenhouse demand” in both Canada and the U.S.

Also, he said, Bevo is “incredibly happy that the Aurora team is committed to keeping all of our facilities dedicated to our customer base, and to expanding our operations into Alberta through the addition of the Aurora Sky facility.” — Glacier FarmMedia Network

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U.S.-listed shares of the company, which also posted a bigger-than-expected quarterly loss, were down two per cent in extended trading.

After more than three years into Canada’s legalization of recreational cannabis, profits have been wearing thin at most pot firms, weighed down by fewer-than-expected retail stores, cheaper rates on the black market and sluggish overseas growth.

Aurora last week said it would shut down a facility in Edmonton, without disclosing the number of employees that would be impacted by the move.

The company laid off hundreds of employees last year to mitigate the impact of the pandemic, shut facilities and amended its loan agreements.

Net revenue at its consumer cannabis business, its second largest segment, slumped 45 per cent to $19.5 million in the fourth quarter.

The Edmonton-based company’s total net revenue fell 20 per cent to $54.8 million, below Refinitiv analysts’ expectations of $56.28 million.

Aurora sold 11,346 kg of cannabis in the quarter, compared with 16,748 kg a year earlier.

On an adjusted basis, the company lost 68 cents per share, compared with Wall Street expectations for a loss of 27 cents per share, according to data from Refinitiv.

— Reporting for Reuters by Rithika Krishna in Bangalore.

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The company said medical distribution from the Aurora Polaris facility that is being shut down will move to an adjacent factory, Aurora Sky, while manufacturing will move to its Aurora River factory at Bradford, Ont., north of Toronto.

“We aspire to be a leaner, more agile organization that keeps pace with our competition and is on a path to profitability,” a spokesperson for the company said in an email statement.

The company, however, did not disclose the number of employees that would be impacted by the move.

On Monday, the Edmonton-based company also delayed the announcement of its fourth-quarter earnings.

Aurora had announced staff reductions and plans to shut five facilities in June last year, hit by the pandemic’s impact on the cash-strapped cannabis industry.

Canada legalized recreational cannabis in October 2018, but profits have remained elusive for most marijuana companies due to fewer-than-expected retail stores, cheaper rates on the black market and slow overseas growth.

— Reporting for Reuters by Niket Nishant and Shariq Khan in Bangalore.

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The company on Tuesday announced next steps in the “business transformation plan” it launched in February to “better align the business financially with the current realities of the cannabis market in Canada while maintaining a sustainable platform for long-term growth.”

Industry observers have said cannabis companies’ fight for market position, against illicit as well as fellow licit producers, has left them piling up inventory, in turn leading to significant price cuts.

The Aurora facilities to be closed include Aurora Prairie, the former CanniMed Therapeutics production site in Saskatoon, a 97,000-square foot, 30-room 19,000-kg/year grow and oil extraction facility and the first and only supplier of medical cannabis to Health Canada from 2000 until 2013.

Also slated for closure is Aurora Mountain at Cremona, Alta., a 55,200-square foot, 4,800-kg/year plant. The Cremona plant was Aurora Cannabis’ first cannabis grow facility and was billed as the world’s first-ever custom-built cannabis grow site.

The closures also include two Quebec sites, Aurora Vie (40,000 square feet, 4,000 kg/year) at Pointe-Claire and Aurora Eau (48,000 square feet, 4,500 kg/year) at Lachute.

The two Quebec sites had been set up for cultivation of “niche and exotic cannabis varieties that cannot be grown in other facilities,” and to meet EU export standards. Aurora Vie today also supplies the company’s Canadian medical and consumer markets with dried flower, oil products and softgel capsules.

The company will also close Aurora Ridge, a 55,000-square foot, 10-room, 7,000-kg/year facility at Markham, Ont., which supplied Canadian consumer and medical markets as well as international markets.

In all, the closures are expected to translate to about a 30 per cent cut in production staff over the next two fiscal quarters, Aurora said Tuesday.

By the end of Q2 2021, Aurora said it expects to consolidate its Canadian production and manufacturing work at four sites: Aurora Sky and Aurora Polaris, both at Edmonton; Aurora River, at Bradford, Ont.; and Whistler Pemberton, at Pemberton, B.C.

A fifth site, Aurora Sun at Medicine Hat, Alta., has been scaled back to six grow bays and “will allow for efficient scale production on an as-needed basis as market demand grows.”

Also, where the company was previously supplying some of its European customers through the Canadian plants now slated for closure, it said Tuesday it plans to “immediately ramp up” cannabis production at its Aurora Nordic facility at Odense, Denmark.

From that site, Aurora said, it believes it can “adequately” service the European market with EU-GMP certified product.

Moving production to larger-scale operations is expected to lead to a “material reduction in per unit cost of goods” by Q3 2021, Aurora said.

For the shuttered sites, next steps will be evaluated at the time of the closures, a company spokesperson said Tuesday via email.

“This has not simply been a cost-cutting exercise,” interim CEO Michael Singer said in the company’s release Tuesday.

Rather, he described it as “a strategic realignment of our operations to protect Aurora’s position as a leader in key global cannabinoid markets, most notably Canada” and to “improve gross margins and accelerate our ability to generate positive cash flow.”

Along with the plant closures and related job cuts, Aurora on Tuesday also announced it will cut about 25 per cent of sales, general and administration staff positions across “all levels of the company, including a restructuring of the executive leadership team.”

Of that group, the company said, most of the staff cuts are “with immediate effect.”

Between office and production staff, the cuts are expected to affect about 700 positions across the company, Aurora’s spokesperson said Tuesday. — Glacier FarmMedia Network

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Canada legalized recreational cannabis in October 2018 but profits have proven elusive for most marijuana companies as fewer-than-expected retail stores, higher prices than on the black market and slow overseas growth resulted in oversupply.

“The Aurora story will be much more common in 2020,” said Hap Sneddon, founder and chief portfolio manager at Castlemoore. “I don’t see rationalization. I see companies leaving the business.”

Many producers, including Canopy Growth, Aurora, Tilray and Aphria rapidly expanded at home and overseas as capital flooded into the industry before legalization.

Edmonton-based Aurora announced a writedown on Thursday of as much as $1 billion, 500 job cuts and the departure of its chief executive. Tilray said Tuesday it cut 10 per cent of its workforce, or about 140 jobs.

Lack of profitability is common in new industries, but a prolonged period of higher cash burn unnerves investors.

Aurora must almost quadruple quarterly sales to meet expenses and Tilray nearly double them, according to Reuters and Infor Financial calculations, based on their latest quarterly results, before they announced the cuts.

An Aurora spokeswoman said the company was making “aggressive changes” because its previous cost structure was “misaligned with the current market conditions.” The cuts and existing financing will cover costs until it sees profits, she said.

Tilray, which says it expects profits by the end of fiscal 2020, will bridge the gap with debt until then, a spokeswoman for that company said.

Short sellers made more than $60 million in paper profits on Friday from a fall in Aurora’s Canadian and U.S. shares, according to S3 Partners, a financial analytics firm. Aurora is the third most shorted pot stock tracked by S3 Partners, trailing Canopy and GW Pharma.

The Horizons Marijuana Life Sciences ETF has lost 68 per cent since its Oct. 16, 2018 peak.

While the sector could see some consolidation, the shareholder dilution from issuing new stock to fund deals could upset investors, said Bryden Teich, portfolio manager at Avenue Investment Management, which avoids cannabis stocks due to the challenges facing the industry.

Companies that have grown more slowly, such as Organigram Holdings, can better control costs, and those with big investors, like Canopy, have a cash cushion, said Neil Selfe, chief executive of investment bank Infor Financial.

Oversupply causing a lack of demand for production and processing facilities would weigh on sales, making shutdowns and writedowns more likely, said Alan Brochstein, founder of cannabis-sector information provider 420 Investor.

— Nichola Saminather is a Reuters correspondent covering the Canadian financial and cannabis sectors from Toronto; additional reporting by Noel Randwich.

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Short interest in cannabis stocks, which reflects bets that prices will fall, has risen 55 per cent for the year to date, handing short-focused investors more than $2 billion in profits over the period, according to data released by research firm S3 Partners on Monday (all figures US$).

More than 800 cases of a vaping-related lung disease and 12 deaths across 10 U.S. states have so far been reported by the U.S. Centers for Disease Control and Prevention, leading states such as Massachusetts to impose temporary bans on all vaping products. Those numbers are expected to climb.

A pushback on vaping could put further pressure on companies such as Massachusetts-based Curaleaf Holdings and Edmonton-based Aurora Cannabis, whose stocks suffered drops of 10 per cent or more after missing revenue projections in their most recent quarters.

Fund managers say increased short selling is a sign that the industry is transitioning from a can’t-lose proposition to a shakeout that will leave only the highest-quality companies standing.

“We’ve been through the golden ages in the sector where you had high growth models and unsustainable price speculation because it was a hot new idea,” said Michael Underhill, chief investment officer at Capital Innovations, who has focused on cannabis stocks. “Now the gold rush talk is gone and you’re going to see a rationalization of the business.”

As a result, Underhill is focusing more on companies like iAnthus Capital Holdings, which recently hired senior executives from Coca-Cola, Nike and Hewlett-Packard, and is focused more on managing its balance sheet for long-term growth than expanding at any cost, he said. Shares of the company are down 65 per cent for the year to date.

“This is going to start being a story of haves and have-nots very soon,” he said.

Short-selling will likely continue to weigh on share prices until legislation allows more giant fund companies such as Fidelity Investments and T. Rowe Price to take larger positions in cannabis companies, said Brett Hundley, an analyst at Seaport Global.

“It’s going to be a while before big institutional investors can access the cannabis space and that takes away the incremental buyer that could push stock values up,” he said.

That lack of support from capital markets will also weigh on companies trying to expand in newly opened markets such as Illinois and Massachusetts, making it harder for those with weak balance sheets to survive, he said.

Yet some fund managers maintain that the short-selling is already overdone, with the possible health benefits of cannabis boosting its long-term appeal.

“There’s a little bit of a feeding frenzy happening right now and everything good is getting thrown out along with the bad,” said Dan Ahrens, portfolio manager of the actively managed AdvisorShares Pure Cannabis ETF.

— David Randall is a Reuters reporter in New York City.

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Interest has boomed in Canada’s marijuana companies ahead of legalization of recreational cannabis in the country next month. Several U.S. states have also legalized marijuana but it remains against federal law.

Shares of rival Tilray Inc. have surged more than 1,000 per cent since their listing in July. Other U.S.-listed Canadian marijuana companies include Canopy Growth and Cronos Group.

Marijuana producers are in demand as several companies, including Constellation Brands and Molson Coors Brewing, are looking to tap cannabis-infused drinks market.

Earlier this week, Coca-Cola said it was closely watching the fast-growing marijuana drinks market for a possible entry.

Edmonton-based Aurora’s plan for a U.S. listing was first reported by the Financial Post on Wednesday.

— Reporting for Reuters by Debroop Roy and Laharee Chatterjee in Bangalore.

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The deal announced Monday is the latest in a wave of mergers in the industry as marijuana producers — emboldened by pot legalizations in Europe and a number of U.S. states — seek to cut costs and gain scale.

Canada’s relaxed regulations, a mature industry and free-flowing capital have offered firms a unique opportunity to advance research without the legal and political risks that bog down growers in the U.S. and elsewhere.

Canadian regulators have granted over 70 firms licenses to produce and sell medical marijuana, with more than half granted in 2017 or 2018.

Vancouver-based Aurora and Markham, Ont.-based MedReleaf together expect to produce over 570,000 kg per year of cannabis through nine facilities in Canada and two in Denmark.

MedReLeaf’s assets include a 55,000-square foot indoor facility at Markham, just north of Toronto, with annual production capacity for 7,000 kg; a 210,000 sq. ft. indoor site at Bradford, about 40 km north of Markham, with 28,000 kg per year capacity; and a one million-square foot, 105,000 kg/year greenhouse at Exeter, about 50 km north of London, Ont., growing cannabis for extracts.

“The combination strengthens our capacity to service the rapidly expanding global medical cannabis markets, and amplifies our early-mover advantage,” Aurora CEO Terry Booth said in a statement.

Canada is one of the few countries that exports marijuana, allowing growers to take immediate advantage of recent medical pot legalizations in more than 20 countries. The worldwide legal marijuana market is expected to generate revenue worth $146.4 billion by end of 2025, according to California-based market consultancy by Grand View Research.

“(Aurora is) targeting mostly Europe for exports … the demand is firmly in place, in terms of their medical market,” said Alan Brochstein, founder of cannabis-industry information provider 420 Investor.

“(Europe has) perhaps a better program initially in terms of insurance coverage and distribution through pharmacies,” he added.

The acquisition is Aurora’s second large deal this year, coming just months after it bought CanniMed Therapeutics of Saskatoon for $1.1 billion.

Aurora shareholders will own about 61 per cent of the combined company, following the all-stock deal. Aurora offered to buy each MedReleaf share for $29.44, representing an 18.2 per cent premium to MedReleaf’s Friday closing price.

Aurora would likely sign more deals, but not any as big as the MedReleaf acquisition, Booth said at a media conference in Toronto. The company would also consider listing its shares in New York, he added.

“Aurora has … been pretty aggressive with their expansion plans but now shareholders will want to see those assets being put to use before the company rushes out and buys something else,” said Bruce Campbell, chief investment officer at Cannabis Growth Opportunity Corp.

— Reporting for Reuters by John Benny and Yashaswini Swamynathan in Bangalore and Nichola Saminather in Toronto.

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The deal signals an easing of tensions following 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 from the target and a $725 million lawsuit filed last week.

The combined company formed by a deal would inch ahead of industry leader Canopy Health’s $7.1 billion market value. The deal-making and fundraising frenzy comes as weed companies jostle for prime position ahead of the country’s legalization of recreational use of marijuana in mid-2018.

Buying CanniMed and Newstrike would boost Aurora’s capacity to meet the higher demand at home, as well as overseas as more countries approve the use of medical marijuana.

Aurora had strongly opposed a plan by CanniMed to purchase 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 fail to reach a deal, CanniMed could further postpone the vote, according to the people, who declined to be identified because they were not authorized to speak publicly about the matter.

While Aurora now prefers to acquire both companies, it could also settle for just CanniMed if talks with Newstrike fail, the sources said.

Under Aurora’s original bid, which was capped at $24 a share, if CanniMed were to buy Newstrike, Aurora’s offer would not proceed.

The sources said Aurora is ready to raise its offer price for CanniMed and would look to use its own stock, which has been on a tear alongside the rest of the Canadian cannabis industry.

CanniMed shares closed up 6.7 per cent at $34.77 in Toronto. Aurora stock was up 3.9 per cent at $13.48. Newstrike gained five per cent to $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 told Reuters 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, both 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, the people said, while cautioning that there is no certainty an agreement would be reached.

Aurora had more than $500 million of cash and marketable securities as of Dec. 31, it said on Jan. 2.

The talks between the three parties started earlier this week, the people said.

— Reporting for Reuters by John Tilak and Nichola Saminather.

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Saskatoon-based CanniMed said Monday it asked the Financial and Consumer Affairs Authority of Saskatchewan and the Ontario Securities Commission to declare that Aurora’s move to take its buyout offer directly to CanniMed shareholders constituted an insider bid.

An insider bid is a takeover offer made by a company insider or their affiliates within a year before the bid. Canadian securities laws demand disclosure, review and approval processes in the event of such a bid to protect minority shareholders.

CanniMed said SaskWorks Venture Fund, Apex Investments, Golden Opportunities Fund and Vantage Asset Management — its “locked-up” shareholders — acted jointly with Aurora.

Aurora — based at Cremona, Alta., northwest of Calgary — offered to buy CanniMed last month but CanniMed adopted a plan to prevent shareholders from entering agreements with Aurora, viewing the deal to be “coercive.”

“We had hoped to make this a friendly and collaborative process, but Mr. Zettl (CanniMed CEO Brent Zettl) refuses to even pick up the phone or return our calls to have a discussion,” Aurora said on Monday in response to CanniMed’s move.

Aurora has sought acquisitions to expand in Canada and abroad amid expectations that Canada will soon legalize the production, sale and consumption of recreational marijuana.

CanniMed on Monday publicly urged its shareholders to reject the Aurora proposal and to separately approve a proposed stock swap deal for control of Brantford, Ont.-based cannabis producer Newstrike Resources.

Newstrike is the parent company for Up Cannabis Inc., which in May announced a strategic partnership for “branding initiatives and product development” with Canadian rock band The Tragically Hip.

CanniMed announced its proposed deal for Newstrike in mid-November shortly after Aurora announced its intention to mount a bid for CanniMed.

“Now is not the time to tender to Aurora’s hostile bid because CanniMed is poised to capitalize on a significant market opportunity in a real way with the Newstrike acquisition,” CanniMed said in a release Monday.

— Reporting for Reuters by Yashaswini Swamynathan and Taenaz Shakir in Bangalore. Includes files from AGCanada.com Network staff.

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