TechCharts wrote: Hi all,
I've been reading up on the whole ACB CMED Mega Merger, as well as events with APH and WEED, the other market leaders in this space. I wanted to join the discussion to share what I think has happened this latest “mega merger” in this space. I’d like to get to get some input to see if this is correct. I normally read more than I write but this is a long post to get people's input. Be forewarned, it’s very, very long. Four pages.
I have a lot of money at stake in the stock market and i don't want to be blindsided. I've been there and I'm very experienced. It's ok to make mistakes, that's how we learn, but it's not ok to repeat mistakes. That’s my motivation here. I want to put my money on the best horses.
So CanniMed trading under symbol CMED is the longest Marijuana Producer in Canada and probably the world. In fact, for over a decade, it was the sole licensed producer (LP) of marijuana in Canada. In 2015 or so, when the Government allowed other producers to emerge, CMED went public with the backing of Golden Opportunity Funds. An investment group in Saskatchewan that invests in local emerging business in that Canadian Province.
As we all know, in the past year, Cannabis investment has caught the attention of the population and everyone and their dog is getting into the business. That's where Newstrike Resources comes in. Newstrike is a new entrant that became public in a reverse take over of a near worthless mining company, a penny stock that trades on the Ventures.
Finding its newly minted and popular persona, Newstrike appears to have approached CanniMed to work on grow facilities. CanniMed appears to have funded these in exchange for some stake in Newstrike. Around September 2017 the two were thinking about merging. That's when Golden Ops Funds appears to have found out about it, since after all, they are the biggest single investor in CanniMed and said "Wait a minute CEO, we don't think this is where we get the best value for this company". So somehow, someone approached one of the top three cannabis companies in Canada and they started to talk to Aurora Cannabis.
Aurora Cannabis is a powerhouse. They are making some very bold moves and going "all out" in its expansions. They just received their grow license for the mega growing facility in Alberta. They acquired grown facilities around the country, they acquired distribution networks worldwide including a top one in Germany, Europe's largest country by population . They make deals everywhere. They even acquire top greenhouse designers and manufacturers to lock in the market. Aurora appears to want to be the Cisco or Apple of cannabis world by gobbling up everything in its path that touchess this space. And just like Cisco's bold moves in its early days, Aurora is doing bold moves and is an expert deal maker.
Aurora Cannabis, just like any acquiring company, wants to pay the least amount of money. They find a jackpot in CanniMed since the CEO of CanniMed is excellent at the pharmaceutical side of the business having operated one of the longer running licensed producers with zero recalls or defect during all these years CanniMed perfected extraction technique and make the top quality CanniMed Oil. The CanniMed CEO is excellent at the pharma side. A purist. But he is horrible at growing shareholder value. The value of CanniMed seriously lags compared to its peers. It's not even a $1B market cap company. New entrants continue to leapfrog this longest running LP! I can see why the largest investors get anxious at the lack of shareholder value and capitalization of the new hot sector.
The CanniMed CEO is a little overwhelmed at this point, he has the Newstrike HIP company who is new in the cannabis space but certainly not new to capital markets eager to do a deal. But #1 investor Golden Opps Funds is not too happy. Golden Opps knows Capital Markets. That's their core competency. They know how capital markets work and they see Newstrike will be making the deal of the year on the backs of CanniMed shareholders. They step in, get Aurora to make a bid for CanniMed with their support but without the critical support of the CEO. The CEO sees Aurora as too big, too aggressive and, most importantly, with the larger partner Aurora, he loses control of his company. He prefers the smaller Newstrike partner since he remains in control in that scenario. Newstrike is then tasked to develop the recreational market which he has resisted to do for years. The CEO of CanniMed is on record saying he is a true believer medical marijuana but he isn't really "sold" on the idea of recreational marijuana. Now, I can see how any shareholders here might be upset. Its like "WHAT"!!! That's where the growth and market potential is!" Yes it's fine to be a perfectionist but a CEO of a public company needs to remember that he is accountable to the owners. The shareholders. Shareholder interests have frankly been neglected by CanniMed CEO Brent Zettl. Not because he is a bad guy, but because his priorities were elsewhere.
So after a long battle with lots of drama and investor discussion via this platform, twitter and other sites, Aurora and CanniMed agree to merge. Reviewing the discussions here, it’s fascinating to see who had ulterior motives, who wanted to “shake the trees” and how this all unraveled. Truly gold for anyone doing a Ph.D. in “Social Media and Capital Markets”.
Getting back to the “deal”: CanniMed shareholders get 3.4 shares of Aurora for each of their shares (of, if they elect, get 2.9 shares and some cash instead of .5 shares up to a limit since Aurora doesn't want to drain their cash).
Now HIP gets peanuts but important media attention. Much less savvy investor who simply look at stock price assume it's cheap but it's not. It's very expensive especially compared to CanniMed’s assets, reputation and goodwill. Aurora knows the HIP is overpriced, they don’t need it, HIP gets a break up fee of less than $10M.
During the two months of negotiations, CanniMed was very smart to lock up current Newstrike inventory and future supply via a separate agreement. A lot of people questioned this, "why have a supply agreement when you plan to merge"? That was a very good question which was never answered when asked. It turns out CanniMed was seeing the potential in merging with Aurora. A large portion of large shareholders preferred established powerhouse Aurora to new sector entrant Newstrike. CanniMed even sent out a very unusual URGENT solicitation to shareholders. Something very unusual considering the vote required a 66.6% majoriity.
The deal is now done. The required majority of shareholders have agreed. The ACB-Merger documents are available on SEDAR. That's the location to look at. Stockhouse and all these social media sites give you pointers to these important sites but you need to read these document yourselves from credible, trackable sources because there are a lot of people here with hidden agendas.
So, where are we at today? If you look at the "new" Aurora which is make of the old Aurora and the old CanniMed, you have the best of both worlds. Aurora is 100% recreational market. They are currently in the medical marijuana space just because that's the only thing legal until this summer, while the old CanniMed is 100% medical marijuana. That's in their gene, corporate thinking and that is makes them the #1 medical marijuana outfit is Canada as a "pure play".
I'm a technology guy. I know technology companies very, very well. Aurora is EXACTLY what Cisco Systems was 20 years ago. Bold and ready to gobble up everything in its path to be #1 and remain #1.
I REALLY hope that Aurora follows the Cisco model. It's proven, it works and it's what makes Cisco Systems the #1 network equipment manufacturer in the world. You are reading this via Cisco Systems transported packets of information. These words have probably crossed dozens of pieces of equipment of different types all made by Cisco which acquired the technology through aggressive acquisitions over the years. Cisco is the Borg of its space. "Assimilation is futile". So is Aurora.
So, as a current shareholder in this space and one who will continue to invest more money here, before I select Aurora over Canory or Aphria, I'd like to see:
The CanniMed Brand and structure stay as a "division" of Aurora akin to the Cisco Model. Make the CEO of CanniMed, who is very competent in his area of expertise, which is medical marijuana, the VP of the "CanniMed Pharmaceutical Division" of Aurora. That keeps the entire structure as-is on the pharma side. That brings in incredible Goodwill (which is shamefully valued at $0 instead of $500M! on the financial books) and retains patients. Yes Brent Zettl was good as a true pharma CEO but very poor at being a true public company that maximizes shareholder value. Fortunately, we now have Aurora and they have no problems on that front.
It doesn't matter if you are an old ACB or old CMED shareholder, what is important is this new ACB even more of a powerhouse. It just refueled its rockets with premium oil!
These are exciting times people. Think about it, you can't BUY recreational marijuana legally today. All that money is sent into the unregulated black market which has zero quality control or pride.
When you combine best of breed "growth by acquisition" Aurora with the best of breed "longest established medical marijuana producer" CanniMed with its top quality processes and CanniMed Oils in a sector that is uptrending with very nice looking technical charts, it’s nothing short of explosif.
It's nice to be part of this sector at this point in time even if I am a late entrant here compared to many. Unlike a good friend of mine which we call “Kramer” who just lucked into this space, I now have to scramble to look at the technical charts to find great entry points. It’s like trying to jump on a fast moving train looking for a cheaper entry point but not really finding one.
In a year, you can bet that the acquisitions and mergers won't be made between marijuana companies. The deep pockets of the alcohol companies will be felt. Because they, in order to maintain market dominance in the "recreational substance" sector, won't want to be left behind as their competitors start to go into this sector with big money.
Now is not the time to be shy. The Aurora - CanniMed Merger is a true win-win for both sides.
I sorry for the very long message here. I welcome any input, correction and feedback. All I ask is we keep the discussion civil and factual. Thank you and have a good weekend!