Aurora Cannabis (TSX: ACB; NYSE: ACB) has agreed to buy all the outstanding shares of Mexican marijuana distributor Farmacias Magistrales SA.
It comes just days after the Edmonton-based firm announced an exclusive partnership with Farmacias to see its products distributed to 80,000 retail outlets and 500 pharmacies across Mexico. Its share price rose 9.6% after that announcement and it has now decided to swallow up Farmacias in an all-stock deal.
The transaction is subject to the usual due diligence, definitive agreements and regulatory approval. Aurora will pay with stock based on pro-forma revenue distribution projections. Farmacias will need to hit certain milestones over the next 12 months, such as maintaining market share, for Aurora to release 25% of the payment.
This deal will give Aurora a strong foothold in Mexico, on top of existing operations in Uruguay and Colombia, as it bids to become the market leader in the flourishing Latin American cannabis market.
“This transaction positions Aurora with exclusive access to supply THC-containing medical cannabis to a large market of more than 130 million people, while also enabling us to capture the full margin of the medical cannabis we sell there,” said Aurora chief executive Terry Booth.
Farmacias is currently the only Mexican firm that holds a license to distribute cannabis with a THC content north of 1%. It already works with a large network of retail points and pharmacies and Aurora hopes it will now be able to rapidly scale up its operations across Mexico.
Julio Sánchez y Tépoz, Secretary of the Federal Commission for Protection Against Health Risks, said that the medical cannabis industry will be tightly regulated and that Farmacias ticks the right boxes. Aurora praised the quality of management, assets, and operations at Farmacias, which owns a 12,000 sq. ft. facility in Mexico City. The team there will use Aurora’s cannabis flower to produce oils, capsules, sprays, and other derivatives to treat patients in Mexico.
Medicinal cannabis was legalized in Mexico last year and derivatives have just hit the market. The new government is also planning to permit cannabis for recreational use as part of its ambitious plans to end the country’s war on drugs.
Aurora is vying with the likes of Canopy Growth Corp., Aphria, Tilray, and GW Pharmaceuticals to become the biggest cannabis firm in the world. Marlboro tobacco owner Altria just invested $1.8 billion in another top 10 producer, Cronos, and the race to become the global leader is heating up.
Aurora has snapped up a number of different companies and created 15 wholly-owned subsidiaries as it bids to remain ahead of the curve: MedReleaf, CanvasRX, Peloton Pharmaceutical, Aurora Deutschland , H2 Biopharma, Urban Cultivator, BC Northern Lights, Larssen Greenhouses, CanniMed Therapeutics, Anandia Labs, HotHouse Consulting, MED Colombia, Agropro, Borela, and ICC Labs.