Key Points
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Organigram is acquiring Aurora Cannabis.
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Curaleaf previously made multiple attempts to acquire Aurora in a hostile takeover.
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Getting deeper into the Canadian recreational cannabis market is a risky move for Aurora, and it may end up backfiring.
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For months, Curaleaf (OTC:CURLF) has been pursuing a deal to acquire Canadian-based pot producer Aurora Cannabis (NASDAQ:ACB) in a hostile takeover. Aurora didn’t like the deal, believing it undervalued its business. Instead, it recently agreed to a friendly deal with another Canadian cannabis company: Organigram Global (NASDAQ:OGI)
It’s a deal that is about 21% higher than the Curaleaf offer. While it’s a short-term win for Aurora investors, it arguably doesn’t do much for long-term investors who have incurred significant losses; in five years, the stock has declined by 93%.
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The biggest winner from all this may end up being Curaleaf. Here’s why.
Image source: Getty Images.
Curaleaf could get better bang for its buck in a year or two
Curaleaf is in much stronger shape than Aurora or Organigram, even combined. The two Canadian cannabis companies generate comparable revenue, and both are unprofitable based on their core operations. They’ve also shrunk in value over the years, significantly; Organigram is also down more than 90% in five years.
In a year or two, the combined entity may end up trading lower than where it is right now. Potentially, Curaleaf, which has generated more than $1.3 billion in revenue over the past twelve months, making it one of the largest cannabis companies in the world, could conceivably buy the combined business of Organigram and Aurora Cannabis at a lower price than today.
Curaleaf is also down big in five years — around 70%. However, with medical marijuana rescheduling taking place in the U.S., its future is looking a whole lot brighter of late, hence its 20% rise in value this year.
It remains a far safer option than either Organigram or Aurora Cannabis
When looking at the long term, I think Aurora’s made a mistake by going with Organigram rather than Curaleaf. While it may secure a higher price right now, in the long run, going with Curaleaf would have unlocked significantly more growth potential for investors. In addition to a strong, robust cannabis business in the U.S., Curaleaf has been expanding its international operations, which can result in greater growth and upside for the stock in the long run.
Aurora has diversified away from the Canadian recreational cannabis market in recent years, and with this deal, it effectively becomes much more entrenched in it. I don’t believe it’s the right move for shareholders. And if it plays out as poorly as I believe it will, the value of Organigram after this acquisition will continue to go down, potentially making it a more enticing option for Curaleaf, which may come out the big winner in the end by being able to acquire more assets at a lower valuation.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Organigram Global. The Motley Fool has a disclosure policy.
