Aurora Cannabis ICC Deal
Aurora Cannabis Inc (OTCMKTS:ABCFF, TSX:ACB) strikes again with another massive acquisition, this time of ICC Labs Inc. (OTCMKTS:ICCLF, CVE:ICC) in a deal valued at CA$290.0 million. The deal sees a massive change in the ICC Labs stock forecast and marks Aurora’s pivot toward a South American expansion with this buy, as well as an increased presence in the cannabidiol (CBD) market.
The latest Aurora Cannabis expansion has a lot of angles to it. Perhaps the most important one for the Aurora Cannabis stock forecast is the South American expansion. By acquiring ICC Labs, Aurora now has 70% of the market share in Uruguay, the first country in the world to fully legalize marijuana for recreational use (Canada represents the first developed economy to do so).
ICC Labs also holds marijuana licenses in Colombia. More importantly, it establishes a foothold in the South American market for Aurora from which it can expand into dozens of countries with potentially millions of marijuana consumers.
The Aurora Cannabis-ICC deal is also important as it provides Aurora with a number of advantages over its competitors, including low-cost production and an increase in production capacity. The cost of production of marijuana is, as you can imagine, potentially far lower in South America due to lower labor costs.
ICC Labs is also in the midst of several expansions that will see its production capacity hit 450,000 kilograms per year.
Aurora Cannabis Inc was already among the largest producers of marijuana in the industry after its flurry of acquisitions this year. Adding ICC Labs to that list only further solidifies the company as the top marijuana producer around in terms of sheer bulk.
Another big advantage that Aurora has gained as a result of this deal is another avenue into the fast-growing CBD market.
Uruguay is the only the country where regulations permit the cultivation of CBD-rich hemp on a commercial scale, allowing producers to grow hemp with tetrahydrocannabinol concentrations of up to one percent.
This essentially allows Aurora to proceed unchallenged in this area of the CBD market.
There is no doubt in my mind that CBD oil and various CBD products will be legalized in time, as will most marijuana products. Operating in Uruguay, where that legalization has already taken place, however, has given Aurora a massive leg up on the competition in this specific area of the market.
ICC Labs also has an established international distribution network, including a presale agreement to expand into Mexico, a massive market of 125 million people.
“ICC is an ideal partner for Aurora to establish leadership in the South American cannabis market, delivering clear first mover advantage on a continent with over 420 million people,” said Terry Booth, CEO of Aurora Cannabis Inc.
He added that the company has, “shown exceptional vision and execution across production, expansion, distribution and product development,” and benefits from, “a very strong management team with deep connections throughout the continent.” (Source: “Aurora Cannabis to Acquire South American Market Leader ICC Labs,” Yahoo! Finance, September 10, 2018.)
ICC Labs Stock Forecast
While Aurora Cannabis stock will likely see a boost down the line as all these acquisitions come to fruition and it can employ its massive production capacity to help establish itself in the Canadian marijuana market come legalization, the ICC Labs stock forecast is on a much faster track.
ICC Labs stock is up about 10% since the deal has been announced. Aurora Cannabis stock, conversely, is up about one percent.
ICC stock is currently sitting at $1.86, while the acquisition from Aurora values the shares at $1.95 per share.
The company had a number of impressive developments on the go, including a state-of-the-art science lab in South America, and the growing of a number of strains of CBD exclusive to South America.
“ICC was the first company in the world to receive a cannabis production license for adult consumer use, making Uruguay the first country globally in the modern era to legalize cannabis,” said Alejandro Antalich, CEO of ICC Labs.
“Combining with Aurora, its industry-leading plant, medical and product development science teams, broad international reach, and strong brands, positions us well to extend our leadership in the South American cannabis markets and the emerging global cannabis industry.”
The ICC Labs stock forecast is likely to continue to rise at a pretty significant clip until either the deal is completed or the stock price levels off as it nears the acquisition price.
The Aurora Cannabis-ICC deal is, in my mind, a win for both companies.
ICC is the target of the acquisition and will therefore likely see a strong boost to share prices.
Aurora Cannabis stock, meanwhile, might not see much change in the short term. But in keeping with its past acquisitions, this one helps fulfill two of the company’s mandates: expand production capacity and increase its international presence.
I’ve long argued that international expansions are the key to the future of the marijuana industry.
Aurora Cannabis, with its latest buy, is positioning itself as a major player in South America as the continent opens up to pot.