Canada based cannabis company, Aurora Cannabis Inc., is leveraging their acquisition of greenhouse design firm Larssen Ltd. in hopes of furthering their plans for expansion across the country. The company hopes that this move will pressure other similar companies into partnerships. Do you think that this is a viable strategy for Aurora?
Aurora Cannabis Inc. says it intends to use its ownership of greenhouse design firm Larssen Ltd. to pressure other cannabis producers to enter partnerships that will further its aggressive growth plans.
In a news release, the Alberta-based cannabis producer said Larssen is involved with more than 15 cannabis industry clients globally, including five Canadian licensed producers, but the Canadian deals will be reassessed once the buyout announced Thursday is completed.
“We’re going to certainly encourage those to proceed but we’re going to require some level of partnership, whether that be an equity stake or a supply agreement or other things,” said Aurora executive vice-president Cam Battley. “We’re open to various formulae.”
He wouldn’t name the five companies but said they don’t include CanniMed Therapeutics Inc., against which it is pursuing an all-stock hostile takeover bid, or Newstrike Resources Ltd., a company CanniMed is attempting to buy.
According to its website, cannabis producer The Green Organic Dutchman Holdings Ltd. is working with Larssen to build a large greenhouse in Quebec. It did not immediately return a request for comment Thursday.
Analyst Russell Stanley of Echelon Wealth Partners, who covers CanniMed but not Aurora, said Thursday afternoon he hasn’t been able to find out which Canadian companies Aurora is referring to in its release.
He said it’s highly unusual for the buyer of a service company to so publicly declare that it will revise its deals with competitors.
“I think in the context of also announcing plans to launch a hostile (bid) for CanniMed, clearly Aurora is being very aggressive in its growth strategy,” he said.
He said the rapid rise in share price for Aurora and other cannabis companies means they can afford to make acquisitions very cheaply through stock offers.
“You’re going to see M&A activity pick up, scale is going to become increasingly important,” he said.
Aurora shares gained 32 cents or about five per cent to close at $6.74 on Thursday.
Financial terms of the Larssen deal were not disclosed, but Aurora said they include performance-based milestone payments.
‘Like nothing the world has yet seen’
Larssen, which has offices in Denmark and Burlington, Ont., is designing, engineering and overseeing construction of the half-built Aurora Sky cannabis greenhouse near the Edmonton International Airport, a facility it says will have capacity to produce 100,000 kilograms of cannabis per year.
“It’s like nothing the world has yet seen in cannabis production,” said Battley.
He said the facility will be a closed system hybrid greenhouse capable of precise control of light, heat, humidity and nutrients to produce “ultra low cost” cannabis. To ensure no contaminants enter the system, the air system is designed to be overpressured and overhead robotic cranes will help to replace humans in the growing areas.
Thomas Larssen, principal owner of Larssen Ltd., is to head up a new subsidiary called Aurora Larssen Projects Ltd.
“Joining the company will allow us to leverage the incredible brand recognition Aurora enjoys, both within and outside of the cannabis sector,” he said in a statement.
“I believe that the resources, infrastructure and strategic support available at Aurora will help establish ALPS as the world’s leading horticultural engineering venture.”
Aurora said Larssen is on pace to generate about $6 million in revenues in the next 12 months.