3 Benefits for Aurora Stock if MedReleaf Takeover Happens

aurora medreleaf merger
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Aurora MedReleaf Deal?

When news broke that Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) and MedReleaf Corp (OTCMKTS:MEDFF, TSE:LEAF) were in talks over a potential acquisition, the rumor mill exploded with talks of just how far along the Aurora-MedReleaf merger discussion was.

While the hype did little for Aurora stock, MedReleaf stock shot up by over 15% since the talks were first announced. But is the acquisition for real or just empty news?

First, let’s talk about what we know for sure.

The two companies were in talks over an acquisition. They’ve both confirmed that. But their confirmations were both rather cagey.

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While MedReleaf was reluctant to comment definitely on the Aurora acquisition, it did say that it engages “from time to time” in discussions with other industry players, including Aurora Cannabis, “regarding various alternatives.” (Source: “MedReleaf, Aurora confirm discussions but say no agreement,Financial Post, May 3, 2018.)

“The company has not entered into an agreement to effect any particular transaction, and there can be no assurance that such discussions will result in any such agreement,” said MedReleaf.

Chart courtesy of StockCharts.com

Aurora also released a statement that was light on particulars, but at the very least confirmed that talks had taken place.

“The company does confirm that it engages in discussions with industry participants from time to time, including MedReleaf,” said Aurora. “At this time the company confirms there is no agreement, understanding or arrangement with respect to any transaction with MedReleaf.” (Source: Ibid.)

That leaves us with a lot of holes in our information, but let’s say these talks are serious. What does that mean for the MedReleaf stock price? For ACBFF stock?

Should Aurora Buy MedReleaf?

Going on the assumption that the Aurora-MedReleaf talks were substantive, what will this mean for the future of these two stocks?

For Aurora stock, it would represent another huge buy for the company. With a market cap of nearly $2.0 billion, MedReleaf would help push ACBFF stock closer to challenging Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED) for the title of largest company in the marijuana industry by market cap.

The MedReleaf stock price, meanwhile, would receive a massive boon following any concrete announcements that the deal was taking place.

The 15% jump we saw over the past few days is just a taste of a much larger jump should the talks lead to an actual deal between the companies.

Both stocks are also set to receive a healthy increase in stock value when marijuana legalization in Canada hits.

Aurora stock is already on its way toward a good year, considering its market position when Canadian marijuana legalization is set to land.

Should it acquire MedReleaf, and should the legalization process keep to its current timeline, Aurora could be one of the biggest beneficiaries of marijuana legalization in Canada.

So, should Aurora buy MedReleaf?

In my opinion, it’s a good move, but one that is not without its risks.

First, Aurora has been aggressively making acquisitions all year long.

The company bought out CanniMed Therapeutics Inc earlier in the year, representing the largest acquisition in the history of the marijuana industry to date.

The purchase was an aggressive move, and one that I believe will pay dividends down the line as the company looks to expand both internationally and within Canada in anticipation of legalization.

But—and this is a big “but”—the industry is facing a downturn right now. ACBFF stock has fallen about 17% since the year began. Making dramatic moves in such a climate could backfire, with investors preferring safer moves in tumultuous times versus risky ones like big-time acquisitions.

Should the acquisition go through—for the right price, mind you—and should marijuana legalization in Canada not suffer any further delays, I see both stocks coming out on top in the long-run.

So, let’s get to the three benefits:

1. Aurora stock will be bolstered by the move, with renewed interest in the shares.

2. Aurora will increase its capacity in the lead-up to marijuana legalization in Canada. With demand set to spike, companies will need to be able to meet that demand or else be replaced by bigger and more capable outfits.

With this acquisition, Aurora positions itself as a marijuana company with a truly impressive output.

3. Aurora will further expand its international presence, which is a strategy I have long endorsed among marijuana companies.

Analyst Take

Huge acquisitions are part and parcel of the marijuana industry, especially as many companies look toward capacity-building in the run-up to marijuana legalization in Canada.

Aurora Cannabis has been more aggressive than most marijuana companies in this regard.

For some investors, that could be off-putting. Whereas some see ambition and foresight, others see reckless spending.

It is a risky play in the current marijuana climate, but one that could pay off huge for Aurora stock down the line.

I’ve long been a fan of ACBFF stock, and I believe that the company has all the right assets to make 2018 a great year. An Aurora-MedReleaf acquisition could help boost Aurora stock’s forecast, but the move is not without its risks.