Aurora-CanniMed Fight Takes a Dramatic Turn
Two Canadian marijuana companies are in a fight with each other and the market is rewarding them both. This has pushed marijuana stock investors into a tight corner where they face an ultimate dilemma. That is, which stock is the right one to choose between Aurora Cannabis Inc (OCTMKTS: ACBFF), (TSE: ACB) stock and CanniMed Therapeutics Inc (OCTMKTS: CMMDF), (TSE: CMED) stock?
In case you haven’t been following, the two Canadian medical marijuana companies are head-to-head in a serious battle.
Aurora took a shot at acquiring CanniMed last month. As it turns out, that attempt backfired. CanniMed forestalled the attempt, after which both parties took the matter to court. The court added more fuel to the fire by trashing CanniMed’s poison pill plan and at the same time denying Aurora the relief it sought, thus leaving investors in a quandary.
Aurora management is celebrating the decision as their victory, while CanniMed management is considering it their win. Both ACB stock and CMED stock are flying high after the announcement.
Aurora stock is up about 13% since yesterday. In the same time, CanniMed stock has rallied over nine percent.
So which of the two is the real winner? Let’s find out.
Chart courtesy of TradingView.com
A Brief History of Aurora-CanniMed Fight
Everything in the garden was rosy until the morning of November 15 when we first heard of Aurora’s hostile attempt to takeover CanniMed. The former, being a much larger marijuana company than the latter, seemingly had an easy target.
That’s until we found out that the latter was also acquiring another smaller marijuana company, Newstrike Resources Ltd. (CVE:HIP). This decision was made on November 13, two days prior to Aurora’s bid.
How did Aurora know of CanniMed’s plans beforehand? There must be a CanniMed insider conspiring with Aurora. That’s what CanniMed’s management alleged. This is where things went downhill.
CanniMed’s management adopted a poison pill to stop Aurora’s takeover attempt. Meanwhile, they also made it public that the acquisition of Ontario-based Newstrike—a marijuana company focused on the recreational market—was in the works.
A quick heads-up: A poison pill is a backdoor channel for the management to dilute an acquirer’s share by offering its own stockholders the option to buy additional stock for cheap.
Obviously, Aurora’s management lost their cool. Aurora took the matter to the regulatory board, seeking a court order to stop CanniMed’s poison pill plans. On the opposite end, CanniMed appealed to the court to stop Aurora from acquiring anything over five percent in CanniMed.
Phew! That’s a lot to process. Wait, we’re just warming up.
Breaking Down the Regulatory Board’s Decision
The board at the Ontario Securities Commission (OSC)—the regulatory body overseeing the matter—gave its verdict on Wednesday.
But the OSC has left investors at sixes and sevens. On one hand, the board has stopped CanniMed’s poison pill plan. On the other, it has also denied Aurora’s request to shorten the bid period from 105 days to 35 days.
Just so you know, by reducing the period, Aurora may have managed to speed up the acquisition process. In other words, the court’s decision against Aurora buys CanniMed more time until March.
On top of this, the board has also asked Aurora to submit disclosures regarding its offer, which, CanniMed alleges, rested on insider information.
Nonetheless, Aurora is now hoping that CanniMed stockholders would vote against Newstrike and take up Aurora’s offer.
Here’s how Aurora’s CEO Terry Booth is luring CanniMed stockholders;
“CanniMed shareholders can now freely choose. On one hand, there is the highly dilutive, cash-draining Newstrike bid. On the other hand, shareholders can tender their shares to Aurora’s Offer for an immediate significant 57% premium, plus the opportunity to become part of Aurora’s faster growth, better execution, shareholder value generation, and exciting drive to global leadership in the cannabis sector.” (Source: “Securities Regulators Cease Trade CanniMed Shareholder Rights Plan, Determine that Aurora and Locked-up CanniMed Shareholders are not Joint Actors, Aurora Take-Over Bid is not Insider Bid, and Minimum Deposit Period for the Offer to Remain Unchanged,” Newswire, December 27, 2017.)
With that kind of a sales pitch, chances are that many CanniMed stockholders would be sold. But we may have to wait until the end of January to be sure how many.
Aurora vs CanniMed: The Better Marijuana Stock
Now comes the real question: Which stock is the better bet?
If you already own either of the two, you’ve little to worry about. Just hold and wait for January when CanniMed shareholders meet to vote on the acquisition.
Here’s what could transpire;
Scenario 1: Aurora Closes Its Acquisition of CanniMed
If you’re an Aurora stockholder, it’s a win for you because now you own a stock in a bigger marijuana company.
If you’re a CanniMed stockholder, it’s an even bigger win for you because not only do you receive a good premium on your investment, but you also now have an ownership in a bigger marijuana company.
Scenario 2: The Acquisition Attempt Falls Through
If you’re an Aurora stockholder, you’ve nothing to lose. Aurora is building its bases ahead of Canada’s marijuana legalization in July. So you’re seemingly in good hands. Read more about our take on Aurora here.
If, on the contrary, you’re a CanniMed stockholder, your fate will ultimately depend on the CanniMed-Newstrike merger being successful. Management’s big bet on Newstrike is expected to open new doors for CanniMed in the recreational marijuana industry, which is about to take off in Canada.
Newstrike’s “Up Cannabis” brand may greatly add to CanniMed’s recreational marijuana sales, once the Canadian government legalizes recreational pot. On the flip side, however, the merger could turn out to be a burden on CanniMed’s pockets, draining all of its stockholders’ equity.
Now, the question is, what if you don’t own either of the two stocks? In that case, the decision would depend on your risk appetite.
Aurora is relatively a safer bet for being one of the three largest marijuana companies in Canada. CanniMed is a speculative play that could triple your investment or completely bomb.
I’ve covered both of these medical marijuana stocks before and I’m bullish on both. But based on the current turn of events, I would pick Aurora since I’m inherently risk-averse.
Holding true to my usual way of concluding my marijuana pitches, I must warn my readers that marijuana stocks are acutely risky. Their current values largely lean on their future projections of growth, which may or may not meet their targets. This is why it’s always best to do your own research before jumping onboard.
That said, keep your eyes peeled for the end of January when the Aurora-CanniMed fight finally unravels.