These two huge deals have rocked the pot industry. And with such M&A activity, many investors are looking for other cannabis producers that may be the next targets.
Here are two companies that could see an acquisition next.
Aurora Cannabis (NYSE: ACB)
I’ve called this stock the “Berkshire Hathaway” of pot stocks before, and it’s not hard to understand why.
Aurora Cannabis (NYSE: ACB) is the top producer in Canada with an output close to 700,000 kilograms per year. Its products have been wildly popular in Canada’s recreational market, and its various brands have generated around 30% of total sales for Ontario Cannabis Store, Canada’s only online cannabis retailer located in Canada’s most populous province. Both its impressive production capacity and its ever-popular products would be attractive to a potential buyer.
The company has also invested roughly C$700 million in other cannabis companies through at least 14 acquisitions in the last two years as it seeks to become a major medical marijuana player both in North America, and worldwide. Its international presence would also be attractive to possible partners.
There have been rumors that Aurora Cannabis has been in talks with Coca-Cola (NYSE: KO) to partner-up to produce a beverage infused with CBD, the non-psychoactive substance in marijuana that treats pain but doesn’t get you high. But so far, this remains a rumor with no deal materializing yet.
While Aurora has a lot going for it, the price tag for it may be a little steep for a possible acquirer with its market cap over $5 billion. Still, I wouldn’t be surprised to see a big partnership—at the very least—for Aurora Cannabis in the future considering everything that would come with it.
Aphria (NYSE: APHA)
Aphria (NYSE: APHA) is the third largest producer in Canada in terms of capacity. The grower has also diversified into oils, vaporizers, and capsules products, and is a leader in all three segments.
Much like Aurora Cannabis, Aphria has branched out into a dozen international markets after its acquisition of Nuuvera earlier this year. However, the stock has lost almost 60% of its value in the last month as marijuana stocks in general have taken a tumble, and after allegations from a short-seller that company insiders profited from Aphria’s acquisition of international businesses at greatly inflated prices.
In September, the company acquired LATAM Holdings from SOL Global Investments (OTC: SOLCF)—formerly known as Scythian Biosciences—which included stakes in Columbia-based Colcanna, Argentina-based ABP, and Jamaica-based Marigold, as well as first right of refusal for a stake in a Brazilian entity. The deal was funded by assuming $1 million of LATAM’s debt, as well as the issuance of more than 15.6 million shares of Aphria stock.
Hedge Fund Quintessential Capital Management and forensic analysis firm Hindenburg Research released a report last week alleging the price paid for these assets was far higher than it should have been, with the report stating that the operations were “virtually worthless corporate entities.” When news broke, the stock crashed.
This controversy could keep potential buyers on the sidelines. However, if the company is able to move past all this drama, it will be a prime candidate for purchase considering its capacity and strong position within the Canadian recreational market and a few key international marijuana markets. And it also now sits at a much more attractive valuation with a market cap of $1.4 billion.