Just days after Aurora Cannabis Inc. announced a supply deal with Mexico’s Farmacias Magistrales SA, the Canadian cannabis company said it has entered a letter of intent to buy all of the company’s outstanding shares in an all-stock deal.
Farmacias is Mexico’s first and, for now, only federally licensed importer of raw materials containing THC, the psychoactive ingredient in cannabis, Aurora ACB, -0.15%ACB, +1.18% said in a statement. The company has the licenses and facilities to store and distribute medical products with more than 1% THC.
The deal “firmly establishes Aurora’s first-mover advantage in one of the world’s most populous countries, where more than 130 million people will have federally legal access to a range of Aurora’s non-flower medical cannabis products containing THC,” said the statement. Aurora also have operations in Colombia and Uruguay.
Farmacias has about 80,000 retail outlets for selling CBD products and 500 pharmacies and hospitals to sell THC products. Aurora will pay for the deal with stock based on a valuation of the proforma revenue distribution projections of Farmacias.
Farmacias will use imported THC and CBD concentrates to make cannabis oil products for the medical market. over time, it will expand to include products such as capsules, topical solutions and sprays and other delivery formats.
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“Integrating Farmacias with our operations in Canada and Latin America will not only accelerate growth, it will build substantial long-term shareholder value,” Aurora Chief Executive Terry Booth said in the statement.
Canadian-listed Aurora shares rose 2.5% on the news, while its U.S.-listed shares were down 1.4%.
The rest of the cannabis sector was mixed. Cronos Group Inc. CRON, -2.04% shares fell 2.3%, shedding some of the gains made Friday on the news that tobacco giant Altria Inc. MO, -1.46% was investing $1.8 billion in the company. Cronos CEO Mike Gorenstein told MarketWatch that the deal was just the start for his company and the industry.
“We just got a new partner and now resources — but beyond that the network and support [Altria] can offer — being able to have that experience. It’s an alignment and a partnership but it’s not like the deal is over. We’re all very, very excited about the beginning, and we can now go and do the things we want to do,” he said in an interview.
Read more: Cronos CEO: $1.8 billion from Big Tobacco is just a beginning for cannabis industry
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Cormark Securities upgraded Cronos to buy from market perform on Monday and raised its stock price target to $17 from $10, or about 42% above its current trading level.
“We like the collaborative potential between the companies and see an immediate ability for CRON to benefit from Altria’s existing pre-roll and device technology,” analyst Jesse Pytlak wrote in a note.
Elsewhere in the sector, Canopy Growth Corp. CGC, -0.21%WEED, +0.34% shares were up about 0.6%, after a bullish note from Benchmark. Analysts said they attended the company’s analyst day last week and toured its Smiths Falls, Ontario facilities.
“We remain confident WEED can be a share winner in the rapidly emerging cannabis market; paramount attributes include vision, execution and product & brand development,” wrote analyst Mike Hickey.
Hickey is expecting the 2018 Farm Bill to be approved by year-end, effectively legalizing CBD, or cannabidiol, the non-psychoactive ingredient in cannabis, which is used in a variety of medical products. The bill would remove industrial hemp from the government’s list of controlled substances and is expected to open the market for rapid expansion.
“We believe WEED will invest meaningful capital into the U.S. after CBD legalization and leverage the Constellation Brands manufacturing profile to create CBD beverages; we expect a deployment strategy already firmly in place and will provide for near term growth,” Hickey wrote.
Corona beer maker Constellation Brands STZ, -0.86% has invested $4 billion in Canopy Growth, a move expected to be followed by other big drinks companies.
Tilray Inc. TLRY, -0.53% shares were down 0.5%, Aphria Inc. APHA, +7.07% was up 7.5% and Hexo Corp. HEXO, -2.88% was down 2.9%. Aleafia Health Inc. ALEAF, -0.48%ALEF, -3.12% shares fell 3% and Green Organic Dutchman Holdings Inc.TGOD, -2.84%TGOD, -2.84% was down 3%.
The ETFMG Alternative Harvest ETF MJ, -1.29% was down 1.6% and the Horizons Marijuana Life Sciences ETF HMMJ, -0.30% was down 0.6%.
The S&P 500 SPX, -0.89% was down 0.4% and the Dow Jones Industrial Average DJIA, -1.10% was down 0.5%.
See now: To read all of MarketWatch’s coverage of the nascent cannabis industry, click here.
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