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Dec 10, 2018

Aurora sees 'rational' Latin American strategy after striking Mexico medical pot deal

Aurora targets Mexico in new pot deal

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Aurora Cannabis Inc. plans to enter the Latin American market in a “rational and methodical way”, a senior executive said after the Canadian cannabis producer announced a deal to acquire Mexican company Farmacias Magistrales.

Aurora’s deal to buy the Mexican pharmaceutical manufacturer and distributor follows an announcement only three days prior that saw Aurora enter a supply agreement with the company. The deal gives Aurora a first-mover advantage in the world’s biggest market for legal medical cannabis as well as a base to expand the Canadian company’s regional strategy as more countries in Central and South America begin to liberalize their marijuana laws.

“Things move pretty fast,” said Aurora’s chief corporate officer Cam Battley in a phone interview with BNN Bloomberg. “Entering a market of 130 million people with an exclusive license is a pretty big deal. As it turns out, the opportunity is bigger than that and we’ve decided to proceed with the acquisition.”

Financial terms of the deal were not immediately available as Aurora still needs to complete its due diligence on Farmacias Magistrales, Battley said. He added that the deal will be all-stock and will be based on revenue projections for Farmacias, to be determined closer to the acquisition’s close sometime next year.

Aurora will provide Farmacias with “derivative” cannabis products which include any refined items such as oils, capsules, tinctures, and other THC and CBD concentrates for Mexico’s medical market, Battley said. Although the country has recently legalized the use of medical marijuana, it has prohibited the cultivation, import, and sale of dried cannabis flower, thus opening up the import of medical-grade and higher-margin cannabis concentrated products.

Battley added that Aurora’s Canadian operations will likely be the main source for Mexico’s medical marijuana products although that will likely shift closer to the region in the coming years. Aurora announced it would acquire Uruguayan cannabis producer ICC Labs Inc. for $290 million in September, noting at the time that the company will help to “facilitate successful expansion into all South American markets.”

“We’re really excited about Latin America,” said Battley.  “It’s going to be developed in a rational and methodical way and this deal makes me really pleased about our access to this asset.”

As Canadian cannabis players expand globally, their forays into Latin America have grown in focus. A report authored by a pair of short sellers last week alleged several cases of insider self-dealing and overspending of several assets by Aphria Inc. that pushed that company’s shares down as much as 50 per cent, and took several of Canada’s cannabis players down with it.

Aurora’s shares dipped as low as $6.25 on the Toronto Stock Exchange  last Wednesday, but recovered to $7.63, as of 1:19 p.m. ET on Monday. Aphria’s TSX-listed shares (APHA.TO) were at $7.50 as of 1:19 p.m. ET, up 7.65 per cent for the day but still down 30 per cent since the release of the short seller’s report.

Battley declined to comment on Aphria’s allegations, but said that Aurora’s aim in Mexico is to establish the company “as a trusted partner for the government with respect to medical cannabis only.”

“However, what we’ve seen in markets around the world is that establishing trust and credibility with governments is key and in multiple cases, it has allowed us to expand the conversation into what the future would hold [for legal cannabis] and how it could happen,” he added.

- With files from the Canadian Press