The Aurora-MedReleaf Acquisition Hitch
When the Aurora-MedReleaf acquisition was first rumored to be happening a few weeks ago, the media was aflutter with talk of how this would shake up the pot stock market.
But it seems that the rumors were able to make more of an impact on the marijuana stock market than the confirmation that the deal was actually taking place.
You see, Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) is down almost 10% over the past five days, despite the Aurora-MedReleaf acquisition set to make the company the largest in the industry by market cap.
Meanwhile, MedReleaf Corp (OTCMKTS:MEDFF, TSE:LEAF) is also down almost seven percent after the company received two surges—one when the rumors first popped up, and a second one when the deal was announced.
So why is the marijuana market so down on the blockbuster deal?
First, the price tag.
The deal—the largest in the marijuana industry by a large margin—is valued at $3.2 billion. That’s a hefty price tag for any company, but especially for one in this current climate.
You see, there’s a lot of concern that companies in the marijuana market are overvalued. This is mostly predicated on the fact that many of these Canadian pot stock companies have seen massive explosions in value. That explosion in value is somewhat at odds with even the most optimistic projections of the Canadian marijuana market.
Chart courtesy of StockCharts.com
The Aurora-MedReleaf acquisition, therefore, comes at a time when some analysts believe that there isn’t going to be enough market to go around for all these growing marijuana companies.
Couple that with the fact that Aurora Cannabis has been one of the more aggressive buyers in the marijuana market, gobbling up smaller companies and growing ever larger.
While the increased production capacity could certainly play a beneficial role in Aurora Cannabis stock’s future if the company is able to spread its supply into markets beyond Canada, it has left some investors less-than-enthusiastic.
While Aurora Cannabis does have several international deals either completed or in the works, that apparently is not enough to justify this massive merger in the eyes of the market.
Another issue is that the deal is being done as an all-stock transaction.
Such a move means that stockholders are likely to see a dilution of their stocks as more shares are issued.
This is obviously not something that Aurora Cannabis stockholders are happy about.
Ideally, the loss of value to dilution would be offset by goodwill garnered by the deal itself, but as mentioned above, the market has had a cool reaction to the acquisition.
This deal positions Aurora Cannabis stock for the future, but unfortunately for those looking for short-term gains, it appears that they will remain elusive for the company.
The increased production capacity and international reach are likely to pay off with strong gains in the near future, whether during the Canadian marijuana legalization run or when the company is able to expand into new markets in Europe or the U.S.
But right now, the market seems to be unimpressed with the Aurora-MedReleaf acquisition.