Aphria, Aurora reportedly step back from merger negotiations as cannabis firms report earnings
In this week's "Rising High," The Fly's recurring series focused on cannabis stock news, The Fly looks back at reported merger talks, cannabis earnings and an analyst view.
APHRIA, AURORA REPORTEDLY DROP MERGER TALKS: Aphria (APHA) and Aurora Cannabis (ACB) recently held advanced negotiations to combine the two companies in what would have been a blockbuster transaction, but those talks broke down late last week, BNN Bloomberg's David George-Cosh reported Tuesday. The two parties decided to step back from talks that took place over several weeks after failing to reach an agreement on board composition and compensation for certain executives.
Following the report, Stifel analyst W. Andrew Carter said the executive compensation and board composition issues are "trivial" in the context of agreed ownership structure and leadership, suggesting the deal could still come to fruition. Assuming no change to the combined enterprise values based on the July 10 closing price, the ownership structure reported implies a 22% premium to Aphria shareholders and a 16% discount for Aurora shareholders, Carter said. The analyst believes this "disparity potentially underscores Aphria's strength" and he reiterated a Buy rating on the shares. Additionally, Scotiabank analyst Adam Buckham said the report is a "major development for the sector with the potential to significantly shake up current industry dynamics”. The analyst believes the potential transaction makes sense as it would alleviate concerns around near-term revenue outlooks versus the cost structure needed to support the sales. Further, a potential deal could be a trigger for industry consolidation, contends Buckham. The combined company would be in a position to increase its market share through reduced pricing, which could lead to a "smaller pie" for the remaining licensed producers, he said. Meanwhile, Alliance Global Partners analyst Aaron Grey said he believes current supply/demand dynamics in the Canadian market "certainly warrant some industry shake-out, but not necessarily consolidation at this moment." He said he would argue that it better fits Aphria to "stay as nimble as possible to better adjust to the evolving industry trends than to grab immediate market share through a merger" right now. He reiterated a Buy rating and C$9 price target on Aphria shares.
CANNABIS EARNINGS:On Tuesday, Mjardin Group (MJARF) reported first quarter revenue of C$2.2M, which compares to revenue of C$10.78M for the same period last year. The company also reported a net loss of C$8.1M, which compares to a loss of C$14.83M for the same quarter last year. "During the first quarter we remained focused on the completion of our cultivation assets as we continue to push aggressively towards being prepared to penetrate the Canadian recreational market with our products, and ramping up revenues starting in the second half of 2020," said CEO Pat Witcher. "I am very encouraged with the progress our team is making with bringing our assets online as well as exploring strategic growth opportunities which could start contributing to our profitability in the foreseeable future." Mjardin added it is on track to achieve measured strategic objectives in 2020.
On Wednesday, WeedMD (WDDMF) reported Q1 revenue of C$12.2M, which compares to revenue of C$3.3M for the prior year period. The company also reported net loss of C$9M, which compares to a net loss of C$7.2M for Q4. “Our significant sequential sales growth in the first quarter was driven by our increased brand recognition, higher product availability and customer acquisition initiatives,” said CEO Angelo Tsebelis. “We ramped-up retail engagement of our Color brand in the adult-use market and expanded our distribution network with new partners in the insured medical cannabis channel with the addition of Starseed. Additionally, WeedMD completed a substantial sale of its inaugural outdoor-cultivated biomass earmarked for extraction and international markets, contributing to record revenue of over C$12M. With our unique medical platform and expanded market presence of our mass-craft adult-use products, we are well-positioned to advance our customer-centric strategy and capitalize on positive market trends in the Canadian cannabis market.”
OPPENHEIMER BULLISH ON GROWGENERATION:Oppenheimer analyst Brian Nagel initiated coverage of GrowGeneration (GRWG) Tuesday with an Outperform rating and $15 price target. The analyst noted that GrowGeneration represents a leading, yet still early stage, up-and-coming retail chain within the rapidly expanding and dynamic market for hydroponic and organic gardening supplies. His initial analysis suggested that as GrowGeneration accelerates further acquisition and organic expansion efforts, the company should increasingly capitalize upon "scalerelated synergies" and over time deliver even better profit and cash generation. At current levels, "shares under-appreciate significantly compelling near- and longer-term prospects" for GrowGeneration, Nagel said.
MEDIPHARM, WEEDMD SELECTED FOR UNH STUDY: MediPharm Labs (MEDIF) announced Thursday its participation in a collaboration between University Health Network and Medical Cannabis by Shoppers that will use blockchain technology to track medical cannabis products from seed to sale. MediPharm Labs’ CBD and THC products, including CBD 25, CBD 25:5 and CBD 50 as well as a suite of Avicanna Rho Phyto CBD and THC products, have been selected to be used in a 24-week observational study targeting at least 2,000 Canadian medical cannabis consumers. The collaboration will use a blockchain-secured software platform designed by TruTrace Technologies and integrated with the Medical Cannabis by Shoppers portal to manage, track and trace medical cannabis strains in seven distinct products manufactured by MediPharm Labs, or about 20% of the study formulary, in various formats including oils and extracts throughout each step of the supply chain. WeedMD announced Thursday it is one of the first licensed producers to have its products and strains included in the University Health Networks’ Medical Cannabis Real-World Evidence Study. UHN is launching nation-wide clinical trials studying cannabis use on chronic pain, issues with sleep, anxiety or depression. Participating patients can select medical cannabis products via the Medical Cannabis by Shoppers portal, and registered under the TruTrace Technologies’ medical cannabis verification program.
GREENLANE PARTNERS WITH NEO PLASTICS: Greenlane Holdings (GNLN) announced Monday their partnership with NEO Plastics. Available this July, NEO Packaging adds an environmentally-friendly offering to Greenlane's existing packaging lines. NEO's packaging contains an additive that accelerates the natural microbial digestion of the packaging's material faster than standard plastic alternatives. The packaging does not change the feel, form, or function of traditional mylar bags and it is ASTM and CPSC child-resistant compliant with a concealed child-resistant zipper. The packaging will be available in six sizes ranging from a gram to a pound and come in two colors.
OTHER CANNABIS STOCKS: Other publicly-traded companies in the space include Akerna (KERN), Aleafia (ALEAF), Auxly (CBWTF), Biome Grow (BIOIF), CannTrust (CTST), Canopy Growth (CGC), Canopy Rivers (CNPOF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), Delta 9 (VRNDF), DionyMed Brands (DYMEF), Elixinol Global (ELLXF), FluroTech (FLURF), General Cannabis (CANN), Green Thumb Industries (GTBIF), Harborside (HSDEF), HEXO (HEXO), Hemp Inc. (HEMP), India Globalization Capital (IGC), Indiva (NDVAF), Indus Holdings (INDXF), Innovative Industrial Properties (IIPR), ICC International Cannabis (WLDCF), Khiron Life Sciences (KHRNF), Liberty Health Sciences (LHSIF), MedMen (MMNFF), Neptune Wellness (NEPT), Organigram (OGI), Origin House (ORHOF), Planet 13 (PLNHF), Real Brands (RLBD), Sproutly (SRUTF), Sunniva (SNNVF), Supreme Cannabis (SPRWF), Tetra Bio-Pharma (TBPMF), Valens (VLNCF), Tilray (TLRY), Trulieve (TCNNF), Vireo Health (VREOF), Wayland Group (MRRCF), Westleaf (WSLFF), Wildflower Brands (WLDFF), YSS Corp. (YSSCF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).